The consumer proposal is a popular alternative to bankruptcy in Canada because it allows you to enjoy many of the advantages of bankruptcy without having to surrender any of your property to your bankruptcy trustee. When you put together a successful consumer proposal, you end up reducing the principal of your consumer debt as well as the interest fees that you owe, making it much easier to pay off your creditors.
The benefits of a consumer proposal, however, are contingent upon you completing the stipulations that you and your creditors have agreed to. If you fail to meet them, your proposal will be annulled and you will likely be forced into bankruptcy. Once annulled, you will likely be forced into bankruptcy.
What Happens if My Consumer Proposal Is Annulled?
The consequences of an annulled consumer proposal are severe. First, unlike other debt relief options that get cancelled, you will lose all of the money that has been given to your creditors. All funds that have been paid will not be returned to you. Second, all of the penalties, fees, and interest charges that you would have had to pay on your debt will be reinstated as if the consumer proposal never happened. This is different from debt relief options like debt consolidation, which do not charge you fees on old debts but only on your failure to pay the debt consolidation loan itself. Finally, having a consumer proposal annulled makes it much more difficult to get a new one. The court will have to give you permission to get a new consumer proposal for the same debts that the annulled consumer proposal was supposed to have settled.
Why Are Consumer Proposals Annulled?
There are two reasons why a consumer proposal might be annulled.
First, you might go through a court-ordered annulment. Courts have the legal right to intervene in consumer proposals when certain conditions are not met. They are much less likely to intervene when the terms of a debt relief option such as debt settlement are not met. Fortunately, courts rarely intervene to annul a consumer proposal, and then it is usually for reasons such as failing to file one’s income taxes.
The second reason why a consumer proposal can be annulled is for a failure to make payments. If you fail to make payments to the debt consolidation loan with which you paid off your creditors, you will likely be sent to collections. If you miss three months of payments on your consumer proposal, however, annulment is automatic. Nothing can stop it once that many payments are past due.
Are There Provisions if My Financial Situation Changes?
Most creditors will accept amendments to a consumer proposal that reduce your payments and extend the length of the proposal if you suffer a loss in income and can no longer afford your monthly payments. If you are currently bound by a consumer proposal and anticipate a drop in income or you have already missed a payment, it is imperative that you contact your trustee immediately in order to see what options for assistance are available.
Avoid Annulment Altogether
Of course, the best option is avoiding both the annulment and the consumer proposal altogether. There is always a chance that a less severe debt relief option is available to you. Learn more about your debt relief options, including the consumer proposal by filling out this debt relief form.