What Happens If I Miss Payments in Bankruptcy or a Proposal?
Why You Shouldn’t Miss Payments in Your Bankruptcy or Consumer Proposal
Household debts can easily spiral out of control.
As interest rates rise and we need to take on more debts to help us stay afloat while paying off our existing debts, Canadian households can find themselves insolvent.
Fortunately, if they are no longer to make good on their debts, they can reach out to a Licensed Insolvency Trustee who can make them aware of their available options.
However, it’s a common fallacy that if you file for Bankruptcy you are released from your debt obligations without cost.
There are various charges associated with filing for Bankruptcy (you can find out more about these here).
While these will be significantly smaller than your previous debts, you will be expected to honour your commitment to pay them on time.
In this post, we’ll take a look at what could happen if you don’t…
Missed Payments in a Consumer Proposal
Part of a Consumer Proposal involved establishing specific payment requirements to which a 51% of your creditors agree.
This is legally enforceable on both sides.
However, with all the forward planning in the world we can all be struck by cash flow crisis.
That’s why the law allows for two proposal payments to be rescheduled without consequences.
Three missed payments, however, will result in the proposal being annulled.
This automatically cancels your proposal and your creditors are once more entitled to the full debt, as well as any interest accrued since you filed.
Of course, circumstances change, and if you can’t keep up with your proposal payments, there are still options available to you.
The terms of your proposal are not set in stone and it is possible to amend them.
However, an Amendment to a Consumer Proposal will once again require the approval of a 51% majority of your creditors.
However, there is a risk that if enough creditors disagree to the amended terms, the entire proposal may be cancelled.
But even this needn’t prove a doomsday scenario.
You can actually file for bankruptcy during a Consumer Proposal.
So you can still get protection from your creditors and prevent things from going back to how they were before- albeit under different terms.
Missed Payments in a Bankruptcy
Among the charges incurred in a Bankruptcy are a base cost, surplus income instalments (where applicable) and any payments allocated to the repurchase of seized assets.
A Licensed Insolvency Trustee will work with you to ascertain a suitable payment schedule with payments being made monthly, weekly or bi-weekly.
It is a condition of your Bankruptcy that all payments by the end.
As such, if you are eligible for an automatic discharge after the first 9 months, missing payments will jeopardize your bankruptcy discharge.
In a bankruptcy, the amount paid back is based on the bankrupt’s income and assets.
There are many bankrupts, however, who feel that the payment calculation is unfair or inaccurate.
In this instance, you have two options available to you- Mediation, or an application to the Court.
In most circumstances, mediation is the better option.
When this happens, a mediator oversees all negotiations between the bankrupt, the Insolvency Trustee and the Office of the Superintendent of Bankruptcy.
The mediator may be an OSB or an independent mediator who has been approved by the Superintendent.
Negotiations continue until everyone has agreed upon a solution and a mediation settlement agreement has been signed by all applicable parties.
The alternative to mediation is to apply directly to the Court for discharge.
Your Insolvency Trustee can accompany you in court if you wish.
A judge will expect you to explain why you were unable to make good on your commitments as agreed.
Depending on how you respond they may take any of the following actions:
- Grant an absolute order of discharge;
- Flatly refuse the discharge;
- Suspend the discharge until a later date;
- Introduce new financial conditions. If they are met by the bankrupt, a discharge will be conceded.
Communication is key
If you are unable to cover your payments in Bankruptcy or Proposal, you can only make matters worse by burying your head in the sand.
Clear and immediate communication with the OSB or your creditors can help you to achieve the resolution you need.
However, doing this on your own can be very daunting.
That’s where we come in.
Since 1999, we’ve been helping Canadians from all walks of life to take control of their debts and make informed decisions by learning all of the available options.
If you’d like to know more about what we can do for you, call us today on (877)879-4770 to arrange a risk-free, zero-obligation and 100% confidential callback.