A consumer proposal could be cancelled in a number of ways, including withdrawn by debtor, rejected by creditors, deemed annulment or court annulment. How a consumer proposal is cancelled can affect your options for filing another consumer proposal in the future.
Can a Consumer Proposal Be Cancelled?
If you don’t complete the terms of a consumer proposal, then it will be cancelled. There are four potential reasons a consumer proposal could be cancelled:
If you have second thoughts about filing a consumer proposal, you generally have at least 60 days to withdraw it. If you wait until after the consumer proposal has been court-approved, there can be more adverse consequences, which are discussed later in this article.
When you file a consumer proposal, your unsecured creditors will have 45 days to provide the Licensed Insolvency Trustee with their proof of claim and voting letter. After 45 days, the Trustee will see if over 50% of the creditors in dollar value have voted in favour of your proposal. If so, your proposal is accepted. If not, they will call a Meeting of Creditors within 21 days to negotiate the terms of the consumer proposal. The proposal gets rejected if no agreement can be made with the creditors. This rarely happens, as both sides usually come to an agreement.
This is the most common reason for a consumer proposal to be cancelled. Most consumer proposals have terms for monthly payments over five years. Where payments are monthly, you can’t fall behind three months of payments, or the proposal will be deemed annulled. If the proposal does not have monthly payments, it will be annulled when there have been no payments for three months.
This is rare because most consumer proposals become deemed accepted by the court 15 days after the creditors accept the proposal. However, a court can annul a consumer proposal if it is determined:
1) You were not eligible to file a consumer proposal
2) The consumer proposal cannot continue without injustice or undue delay
3) The approval of the court was obtained by fraud
When Can You Withdraw a Consumer Proposal?
A consumer proposal can be withdrawn at any time before 45 days from filing the consumer proposal with the Office of Superintendent of Bankruptcy and 15 days before court approval. Therefore, a consumer proposal can be withdrawn 60 days after filing.
Once the consumer proposal has received court approval, it can no longer be withdrawn. After that point, it will only get cancelled by deemed annulment for missed payments or filing for bankruptcy.
If you change your mind about filing a consumer proposal soon afterwards, it would be best to withdraw it before the 60 days are reached. By withdrawing your consumer proposal, you can always file another one in the future. Otherwise, if your consumer proposal has been deemed annulled, you can’t file a new one, only revive the prior one.
When Would a Court Cancel a Consumer Proposal?
The court does not usually hear consumer proposals. Most consumer proposals will be deemed approved by the court 15 days after being accepted by the creditors. Deemed acceptance does not require anyone to attend court or for the court to hear the matter.
However, there may be instances where a court hearing is required. Any time within 15 days after the creditor accepts the consumer proposal, an interested party or the Office of the Superintendent of Bankruptcy can request the court to review the proposal.
What Happens if Your Consumer Proposal is Cancelled?
When a consumer proposal is cancelled, it means the agreement with the creditors you made has been voided, which has the following consequences:
Any payments you have made go towards the Licensed Insolvency Trustee’s fees, and dividends are paid to your creditors. You won’t receive any money back.
Creditors will have the right to restart collection against you for the debts owed and can continue charging you interest back to the date the proposal was filed.
You cannot file a new consumer proposal but could seek an automatic revival or court revival to restart the consumer proposal.
You may have no other option to settle these debts than filing for personal bankruptcy.
What Happens to My Credit Report if My Consumer Proposal Is Cancelled?
When you file a consumer proposal, you will receive an R7 rating on your credit report. This rating stays on your credit report for three years after completion or six years from the filing date, whichever is earlier.
If your consumer proposal is cancelled, it will stay on your credit report for at least six years from when filed. However, you can still take steps to rebuild your credit during that period.
If you are considering a consumer proposal to reduce your debts, the Litvack Group would be happy to have a Free Consultation to discuss your financial circumstances and review your options. Contact us today!