Defaulting on a Consumer Proposal or Consolidation Loan: The Consequences and Your Options
In the realm of financial management, understanding the consequences of defaulting on a Consumer Proposal or a Consolidation Loan is crucial. Moreover, being aware of the potential options available when faced with this situation can make a significant difference. This article will explore the path that unfolds when one is unable to meet their obligations concerning a Consumer Proposal or Consolidation Loan.
Understanding the Concept of Defaulting on a Consumer Proposal
A Consumer Proposal (CP) is a legal agreement facilitated by a Licensed Insolvency Trustee between you and your creditors to repay a part of your debts. Defaulting on a CP can occur in two distinct manners.
1. Defaulting on Monthly Payments
Most CP agreements necessitate regular monthly payments. If you fall behind by three monthly payments, your CP is automatically annulled or cancelled. This means your creditors can initiate full collection action on the debts you owe.
For instance, consider your payments are due on the 15th of every month. If you have not made payments for May 15, June 15, and July 15, by the time July 16 comes around, your CP would be automatically annulled.
2. Non-Monthly Payment Default
If your CP agreement allows for non-monthly payments (such as larger payments every two months), your CP is automatically annulled if you fail to make a single payment within three months of its due date.
If you foresee difficulties in making payments, it is advisable to contact the CP Administrator to explore possible solutions. The clauses in your CP might allow for a delay in the payment due date.
Reviving an Annulled Consumer Proposal
Even if your CP is annulled due to default, there are certain scenarios where it can be “revived” or reinstated. This process requires the CP Administrator to notify your creditors that unless they file an objection within a specified period, your CP will be revived and back in full force. A court order can also revive a CP. However, you would typically be required to clear your overdue payments before the revival is approved.
Defaulting on a Consolidation Loan
A Consolidation Loan combines multiple debt obligations into one single debt with favorable repayment terms. If you default on these payments, the lender can take actions as per the loan agreement or provincial law.
If you have provided collateral for the loan, the lender can typically seize and sell the collateral, applying the proceeds towards your loan dues. The lender can also take collection action to recover the remaining amount. This usually involves demanding payment. If you refuse to comply, the lender may seek a court judgment against you, allowing them to garnish your income or seize other assets. However, certain restrictions apply in some provinces if the collateral involves “consumer goods.”
The Case of British Columbia
Consider a scenario where you live in British Columbia and have provided “Consumer Goods” as collateral for a loan. If you default on your payments, the lender can either seize the collateral and sell it to repay your loan or sue you for the full amount you owe. They cannot do both. If they seize the collateral, they cannot demand any further payment or sue you. Similarly, if they sue you, they can’t seize the collateral.
Actions to Take If You Can’t Repay a Consolidation Loan
If you anticipate difficulty in making payments on your consolidation loan, consider the following steps:
Engage with the Lender: Discuss your situation with the lender to see if other options are available, such as extending the loan’s term thereby reducing your monthly payments. It is crucial to get this agreement in writing and seek advice from an independent party if you do not understand the terms.
Explore Alternatives: Consider other lenders or banks to see if you can avail better terms. You could then use this new loan to repay the consolidation loan.
Consult a Licensed Insolvency Trustee: They can help you explore if a Consumer Proposal, bankruptcy, or another option is a better way to handle your overall debt situation.
In these challenging times, many people struggle to manage their debts. If you find yourself in a similar situation, do not hesitate to seek professional advice. Tailored solutions are available that take into account your unique financial circumstances.
