A consumer proposal is a legally binding agreement between you and your creditors to settle your debt. Typically, the payments are scheduled as a monthly payment over a certain period of months. But what happens if you stop making payments? Your consumer proposal is annulled.
The Bankruptcy and Insolvency Act is quite clear on what happens when payments are missed. Section 66.31(1) states:
…A consumer proposal is deemed to be annulled on
(a) in the case when payments under the consumer proposal are to be made monthly or more frequently, the day on which the consumer debtor is in default for an amount that is equal to or more than three amount of three payments…
It doesn’t matter what stage the proposal is at, or what the reasons are for missing the payment. The law is clear. If 3 payments are missed, it is annulled.
Consider Joe (not his real name): he made a proposal to his creditors to pay $200 per month for 36 months. He decided to pay $50 weekly as a pre-authorized payment. A year into his proposal, he needed to miss two payments due to an unexpected layoff from work. Yet, it wasn’t a problem; since he was paying weekly, he was ahead by two weeks in with his payments. As a result, missing the payments didn’t put him behind.
Compare that with Fred (also not his real name). Fred made a similar proposal to his creditors except he chose to paid monthly. In the first two years of his proposal, he cancelled two payments. When he called to cancel a third time, it became a problem. Missing a third payment would annul his proposal. Even worse, all the legal protections provided through the proposal would disappear upon its annulment and he would be responsible for the original amounts due on his debts.
What can you do to make sure your consumer proposal isn’t annulled?
The obvious answer is not to miss any payments. However, what can you do to make sure you don’t miss payments? Make your payments according to your cash flow.
If you are paid weekly, pay weekly. If you are paid bi-weekly, pay biweekly. By setting up your payments to align your paydays, you’re less likely to experience cash flow problems. Plus, this doesn’t have to just apply to your proposal payment; you can set up all of your expenses to align with your paycheques.
In addition, be sure to set aside money into an emergency fund by putting in a little bit from each paycheque. This will help you cover any unexpected expenses. And if you do run into cash flow problems, talk to your trustee. Ask if you can make a partial payment.
What can I do if my consumer proposal was already annulled?
Talk to your administrator about other options that might be available. Those options might include:
- Reviving the consumer proposal if less than 30 days have passed and you can make the payments to bring it current.
- Make a court motion to revive the consumer proposal. If it has been more than 30 days, you can ask the court to revive it.
- File bankruptcy. If there has been a negative change in your situation, talk to your trustee to see if bankruptcy makes sense for you.
- File a debt management plan. If you cannot revive your consumer proposal and don’t want to file for bankruptcy, talk to your local nonprofit credit counsellor about a plan to pay your debts in full.
- Negotiate with your creditors on your own.
The best plan is to talk to your licensed insolvency trustee before your proposal is annulled. Together, you and your trustee can discuss your best plan of action.