Canceling a Consumer Proposal?
A consumer proposal can be a lifeline for individuals experiencing financial difficulties. However, situations can alter, and you may find yourself wondering, Can You Cancel a Consumer Proposal? This article will delve into the intricacies of consumer proposals, their legal obligations, what happens when payments are missed, and the implications of annulment.
Consumer Proposals: An Overview
A consumer proposal is a legally binding agreement, designed under the Bankruptcy and Insolvency Act, that enables debtors to settle their debts within manageable conditions. The process includes negotiations with creditors to agree on a repayment plan that suits your financial situation. The main aim of a consumer proposal is to consolidate all debts into monthly payments spread over several years.
Legal Responsibilities in Consumer Proposals
When you file a consumer proposal, you are required to fulfill certain responsibilities. A legally accepted consumer proposal necessitates you to:
- Regularly make required payments to your Licensed Insolvency Trustee.
- Attend two credit counselling sessions.
- Adhere to any additional conditions within the proposal.
Similarly, your creditors also have certain legal obligations to respect. Once your consumer proposal is filed, your creditors are legally obliged to cease all communication with you, and all correspondence occurs through your Licensed Insolvency Trustee.
Consequences of Missing Payments
The primary financial obligation in a consumer proposal is making timely payments. While late payments do not get reported to the credit bureau, missing payments can have significant consequences. The Bankruptcy & Insolvency Act allows for some payment flexibility when unexpected events occur. However, if you miss three consumer proposal payments, your agreement is automatically annulled.
Consumer Proposal Annulment: What Does It Mean?
A consumer proposal is considered annulled when you miss three payments. The frequency of your payments, whether monthly or weekly, determines this period. But note, the determination of missed payments is cumulative, not consecutive. If you miss one payment, make the next, but then miss the next two, you are behind three payments, and your proposal is annulled.
An annulment is automatic, and your trustee has no control over this; it’s a part of the Bankruptcy & Insolvency Act regulations. Apart from payment default, a consumer proposal can also be annulled if the debtor was not eligible to file a consumer proposal, or the proposal was obtained through fraud.
Annulment Aftermath: What Happens Next?
The annulment of a consumer proposal can have serious repercussions. If your proposal is annulled:
- Any money you’ve already paid out will not be returned as the funds would have been distributed to your creditors.
- You revert back to owing the total debt, along with all fees, interest, and penalties.
- You lose the creditor protection provided by the proposal.
- Your creditors can start contacting you again about your debt and initiate legal collection proceedings.
- Your credit rating will be severely affected, with creditors starting to report defaulted payments again.
Impact on Credit Report
An annulment counts as negative information on your credit report, and it stays on your credit rating for six years. During an active consumer proposal, your credit rating shows a score of R7, indicating regular payments under a formal arrangement. However, when a proposal is annulled, this status changes to R9, the lowest score possible.
Alternatives After Proposal Annulment
If your consumer proposal is annulled, you have a few options:
Revive the proposal: The proposal can be revived through your trustee within 30 days of default or through the courts after 30 days.
File bankruptcy: This process is not automatic after a consumer proposal annulment. You must go through the process of making a bankruptcy application.
Renegotiate with your creditors: A deemed annulment means your creditors can contact you regarding your debts. You can work with them to settle debts on your own.
Ignore the debts: Another option is to ignore the debts and wait for them to fall off your credit report.
Preventing Consumer Proposal Annulment
To avoid having your proposal annulled, it’s essential to ensure your proposal payments fit within your monthly budget. Here are some suggestions:
- Start a consumer proposal only if you have the income to support the payments.
- Choose a longer repayment period to lower your monthly payments.
- Automate your payments with preauthorized payments.
- Schedule your consumer proposal payments to coincide with your paydays.
- Increase your payment frequency.
- Make extra payments.
Discuss with your trustee about amending your consumer proposal.
In summary, while it is possible to cancel a consumer proposal, it is crucial to understand the implications and explore all options thoroughly before making a decision. If you’re facing financial difficulties, it is always advisable to consult with a financial advisor or Licensed Insolvency Trustee to guide you through this complex process.
