Can You Cancel A Consumer Proposal?

Can you cancel a Consumer Proposal if your circumstances change? The short answer is yes, you can. But first, it’s important to understand what a Consumer Proposal is, how they work, and why you might need to cancel it.

Consumer Proposals

In Canada, a Consumer Proposal is an option Licensed Insolvency Trustees (LIT) offer their clients as a debt solution. Your LIT may recommend this option if you cannot pay your debts but don’t want to file for Bankruptcy.

What is a Consumer Proposal

If you can’t repay your debt, a Consumer Proposal in Canada is an option for debt relief. Your LIT negotiates with your creditors to accept a reduced amount in return for consistent payments. Sometimes, a Consumer Proposal can reduce the amount you owe by 80%.

Your LIT will file the Consumer Proposal with the Office of the Superintendent of Bankruptcy. Your creditors have 45 days to accept the offer. If no one asks the court to review it, your proposal is deemed approved by the court and is in effect on the 15th day after your creditors have accepted your Consumer Proposal.

How does a Consumer Proposal work?

Your Consumer Proposal requires you to pay your LIT, who then distributes the payments to your creditors. You can have up to five years to pay off a Consumer Proposal.

Depending on your situation, Consumer Proposals can offer several advantages:

• You’ll be debt free once you complete your payments.
• You keep all your assets.
• Your payments don’t change even if your income increases.
• A Consumer Proposal will drop off your credit reports three years after you complete it.
• It doesn’t reduce your credit rating as much as a Bankruptcy does.

If you are struggling with too much debt, a Consumer Proposal can be a very effective solution for you. Your life after filing a Consumer Proposal should be more manageable once your debt payments are under control and your creditors can no longer contact you.

Cancelling a Consumer Proposal

You may file a Consumer Proposal, plan to make your payments and be debt free within a specific time. Suddenly, your circumstances change. There are two main reasons you may want to stop the proposal and three different ways you can cancel it.

A windfall

Your financial situation may improve, and you may consider cancelling your Consumer Proposal. It could be that you receive an inheritance, sell an asset, win the lottery or receive an increase in income. You are not obligated to make additional payments, pay off, or increase your Consumer Proposal payments. However, you may want to cancel your Consumer Proposal to maintain a good credit rating. Or, if you have extra funds, you could put it towards your debt to be debt free as soon as possible.

Payments aren’t affordable

You may experience a reduction or loss of income. It could be a job loss, a divorce, or an injury or illness that leaves you unable to work. Regardless of the cause, you could be unable to manage the payments required. As a result, you can cancel your Consumer Proposal and consider other options. There are three ways to cancel. You can withdraw it, amend it, or it can be annulled.

Cancel a Consumer Proposal

If things change and you may realize you can’t manage your payments. If you won’t be able to make the payments, you can cancel your Consumer Proposal by withdrawing it. You must withdraw a Consumer Proposal within 60 days of filing before the court approves it. Your LIT can arrange this for you.

If you withdraw your Consumer Proposal, you must make other arrangements to pay your debts. You can pay off what you owe or pay your creditors as agreed initially. If neither of these is an option, your LIT may suggest filing for Bankruptcy.

Amending your Consumer Proposal

The purpose of amending your Consumer Proposal is to change the payment amount, the time you have to make payments, or both. If you need an amendment, your LIT will file it. Your creditors can choose to accept it or reject it. You’ll make payments based on the new terms if they accept it. If they reject it, your original Consumer Proposal is no longer valid. All your debts return in full, leaving you open to collection calls and legal action.

Annulling your Consumer Proposal

Consumer Proposals can be annulled for several reasons. The most common is three missed payments. Missed payments are calculated based on the payment frequency in your Consumer Proposal.

Suppose your payments are bi-weekly. Once you are in arrears of three bi-weekly payments, your proposal is annulled. You don’t need to miss three payments in a row for an annulment. If you have not caught up on past missed payments, those missed payments will count toward your arrears.

You can defer or miss two of your Consumer Proposal payments. Once you miss three, your Consumer Proposal is annulled. The annulment is automatic on the day your third payment is late. Having your Consumer Proposal annulled is the least desirable way to cancel a Consumer Proposal. The consequences can be severe.

Your Consumer Proposal will no longer be in effect. This will reinstate your debt and any interest, fees and penalties owing. Your creditors can begin collection calls and take legal action against you. You won’t get a refund for payments you made toward your Consumer Proposal.  And your credit rating can drop from an R7 to an R9.

It’s possible to have your Consumer Proposal revived if you contact your LIT. You must do this within 30 days of an annulment. Your LIT can contact your creditors and ask them to reinstate the agreement. Before doing so, your payments must be up to date. You’ll also need to present your creditors with a plan to make your payment on time going forward.

If you miss the 30-day deadline, the only way to have your Consumer Proposal revived is to apply to Bankruptcy court. Generally, you’ll need the help of an insolvency lawyer, and the process can be costly. Again, you’ll need to show the court and creditors you can make your payments going forward.

You may have to file for Bankruptcy if you can’t revive your Consumer Proposal. If not, your debts will be revived, leaving you vulnerable to legal action, collections, and higher debt payments.

Getting Debt Help

Cancelling, amending, or annulling a Consumer Proposal can add to your financial difficulties. The best way to avoid this stressful situation is to get the right advice. Our team of Licensed Insolvency Trustees at Adamson and Associates are licensed and trained to provide you with the best solution for your debt.

We offer credit counselling, Consumer Proposals, and Bankruptcy as options to eliminate your debt. We will work with you to understand your financial circumstances and find the right solution. Contact us today for a free consultation at 519-310-5646 to become debt-free and on your way to a fresh start.