If your consumer proposal is annulled, the contract made with your creditors is cancelled, and they can resume collection against you. However, it is possible to revive your consumer proposal if you would still like to complete it.
What Does it Mean if My Consumer Proposal Is Annulled?
If your consumer proposal is annulled, the legal agreement you had entered into with your creditors to repay a portion of your debts under specific terms and conditions has been cancelled. An annulment of a consumer proposal can occur for various reasons, and it significantly impacts your financial situation.
While you were in the consumer proposal, all your creditors were prevented from collecting or charging you interest. Their rights are revived once the proposal has been cancelled, and they can recommence collection immediately. Essentially, you will be back where you were before filing the consumer proposal, less any payments made through the consumer proposal.
When is a Consumer Proposal Deemed Annulled?
A consumer proposal is most commonly annulled for the reason of missed payments. For a consumer proposal to become deemed annulled, you must be more than three payments in arrears.
Can I Miss Payments in a Consumer Proposal?
Yes, you can miss payments in a consumer proposal. Maybe, you have car repairs one month or a family emergency, so you have to miss a monthly payment. However, you can’t fall behind three months of monthly payments, not consecutive missed payments, to prevent your proposal from being annulled.
For example, if your consumer proposal had terms of $200/month for 60 months, if you fall behind in a total of $600 by the beginning of any month, your consumer proposal will be deemed annulled. So, if you miss two payments or fall behind $400, the consumer proposal is still active, and you can always make up for the missed payments at any time during the proposal. In addition, you can make extra payments, so if you miss payments in the future, you have more room before you hit the three-month total of missed payments.
Will a Consumer Proposal Annulment Happen Automatically?
Yes, the Licensed Insolvency Trustee will see at the beginning of each month if your consumer proposal is behind three months of payments and will automatically annul your proposal by notifying you, your creditors and the Office of Superintendent of Bankruptcy.
The Licensed Insolvency Trustee has no control or leeway over annulling a consumer proposal as the Bankruptcy and Insolvency Act prescribes.
Are There Other Reasons Besides Payments for a Consumer Proposal to Be Annulled?
While default of payments is the most common reason for a consumer proposal to be annulled, there are other reasons for it to be annulled. For example, the court, upon application by a creditor or the Licensed Insolvency Trustee, can also annul a consumer proposal if:
The debtor defaults on any provision in the consumer proposal;
The debtor was not eligible to file a consumer proposal;
The consumer proposal cannot continue without hardship; or
Court approval of the proposal was obtained by fraud.
What are the Consequences if a Consumer Proposal is Annulled?
If your consumer proposal is deemed annulled, it is now cancelled and has the following consequences.
Any money you’ve already paid in the consumer proposal will not be returned, as the funds will have been paid to your creditors.
You return to owing the total debt with interest accruing again (less any payments from your proposal to your creditors).
You lose the protection from your creditors to stop collection actions and interest on your debts provided by the consumer proposal.
Your credit rating will decline further as the annulment is reported to the credit agencies.
How Will Annulled Consumer Proposal Affect Your Credit Report?
If your consumer proposal is annulled, this will be negative for your credit report. When you filed the consumer proposal, you received an R7 rating on your credit report, but this will now change to an R9 rating, equivalent to the rating for filing for bankruptcy. The deemed annulled proposal will stay on your credit report for six years.
When a consumer proposal is annulled, your debts are no longer protected by the proposal and become immediately due and payable again. Creditors will restart their collection activity and can report missed payments to credit agencies.
What are the Options After Consumer Proposal is Annulled?
1) Ask your Licensed Insolvency Trustee to revive your consumer proposal automatically. This must be completed within 30 days from the date of default.
2) Application to the Court to revive your consumer proposal.
This will require hiring a lawyer to prepare the application to revive your consumer proposal.
3) File a bankruptcy
If you can’t revive your proposal, you could speak with the Trustee to file bankruptcy for all the debts included in the proposal.
4) Ask the Court for authorization to file a new proposal.
You can't file a new proposal if your consumer proposal has been deemed annulled. However, you could hire a lawyer to request court authorization to file a new proposal.
5) Negotiate with your creditors
You can try to negotiate a payment plan directly with your creditors. However, this can be difficult to achieve if you have more than one.
Tips to Avoid Consumer Proposal Annulment
1) Ensure your agreed monthly payments in the consumer proposal with your creditors is affordable. If the proposal monthly payment is less than you were paying for all your bills before the consumer proposal, it should be easier to manage.
2) Manage your budget to ensure you have enough money in your bank account for the scheduled payments. You could schedule the payments on the same day you receive your pay or pension income. This will help avoid missing payments and incurring non-sufficient charges.
3) Make extra payments when you can. If you get paid bi-weekly, you should get two months with three pay cheques. Consider making additional payments for those months.
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!