Consumer Proposals offer multiple advantages of bankruptcy in Canada, but with less drawbacks. For example, in most situations you will not be required to surrender any assets to the bankruptcy trustee. Additionally, with a carefully crafted consumer proposal you can lower the principal amount owed on your consumer debt, along with reducing amount of interest owed. This results in a much lower monthly payment and helps you pay creditors off quicker.
However, the consumer proposal advantages are only available by following the terms agreed to by the creditors. In the event you fail to meet the agreed terms, your consumer proposal will enter annulment. This typically forces you into filing bankruptcy.
What If My Consumer Proposal Gets Annulled?
There are severe consequences to having your proposal annulled. First, no paid funds will be returned. You lose all money sent to creditors unlike with other debt relief programs that get cancelled. Then, all of the interest charges, fees and penalties you would owe without the consumer proposal agreement is reinstated to your total debt owed, like the proposal had never been accepted.
These consequences are different compared to other debt relief options, such as debt consolidation that does not charge a fee on older debts, only charging fees on late or failed payments on the debt consolidation loan.
Finally, an annulled consumer proposal makes getting another proposal accepted difficult. You would have to request permission by the court to submit a new consumer proposal over the same debt which was supposed to be settled by the annulled consumer proposal.
Why Do Consumer Proposals Get Annulled?
A consumer proposal may get annulled for two reasons.
If specific conditions have not been met, the courts can legally intervene with the consumer proposal. However, the courts are not as likely to intervene when terms for other debt relief is not met, such as debt consolidation. Although, it is rare that courts intervene a consumer proposal with annulment. A typical reason may be due to not filing income taxes.
The second, and more common reason for a consumer proposal being annulled is missing payments. If you cannot pay your agreed minimum payment for debt consolidation, you’re likely to have the debt is sent to a collection’s agency. However, with a consumer proposal, after three missed payments the proposal is automatically annulled. Once you miss three payments, there is no way to avoid it.
What If My Financial Situation Changes?
If your financial situation changes and you reach out to your creditors to let them know, the majority of them will likely accept amendments to the consumer proposal. Therefore, if you cannot afford the minimum payment due to loss of income, the creditor can extend the proposal length up to 5 years, reducing your monthly payment. If you already have a consumer proposal you’re bound by, but expect a decrease in wages or missed a payment, it is crucial that you contact the trustee right away to see your available options for assistance.
The best option would be to avoid both the consumer proposal and annulment process. Even with debt and poor credit scores, there could be other options available with less severe penalties. To learn more about your options for debt relief in Canada, fill out our debt relief form.
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