What Happens If Your Finances Change After Filing a Consumer Proposal?

What Happens If Your Finances Change After Filing a Consumer Proposal?

Filing for a consumer proposal in order to settle debts is a common practice under the Bankruptcy and Insolvency Act. It’s a structured agreement that allows you to pay off your debts according to your financial capability at the time of filing. But, your financial situation is not a constant, it may shift positively or negatively. Therefore, the question arises – What happens if your finances change after filing a consumer proposal?

1. The Impact of Income Change on Your Consumer Proposal

A significant advantage of a consumer proposal over bankruptcy is the stability of the repayment terms. Once your proposal is accepted, these terms are fixed throughout the lifespan of the proposal.

1.1 The Rise in Income

Even if your income increases after the acceptance of your proposal, the monthly repayment amount remains the same. This stability is beneficial as it doesn’t cause a financial strain when there is a sudden increase in income.

1.2 The Drop in Income

On the other hand, if your income decreases or your expenses rise, making the repayment challenging, you must discuss it with your trustee. They can guide you regarding a possible amendment to the proposal based on the changes in your financial situation.

2. The Consequences of Default on a Consumer Proposal

Failing to keep up with your consumer proposal payments can lead to serious consequences. The proposal can be annulled if you fall behind on a total of three monthly payments.

2.1 The Aftermath of Annulment

After annulment, your unsecured debts return, and creditors can pursue full payment, including the interest accumulated since the date of filing. The situation can lead to collection calls and possible wage garnishments, making it a scenario one would prefer to avoid.

3. What to Do When There’s a Significant Drop in Income?

A proactive approach can save you in case of a significant drop in income. By acting promptly, you can avoid the annulment of your proposal. It’s crucial to discuss with your Licensed Insolvency Trustee (LIT) as soon as you foresee the inability to complete your proposal.

3.1 Amending the Proposal

You can amend the proposal to reduce the monthly payment, or if your proposal is nearing completion, you can file an amended consumer proposal for the amount already paid to date. Creditors have the final say on accepting the amendment, but most are open to negotiation based on your altered financial situation.

3.2 Impact of Refusal to Amend the Proposal

In case the creditors refuse to accept the amended proposal, it does not revert back to the original terms. Instead, your proposal fails, and your debts become due in full again.

4. Dealing with a Windfall during a Consumer Proposal

During a consumer proposal in Canada, you retain ownership of your assets. Therefore, even if you receive an unexpected financial gain like winning a lottery, an inheritance, or a raise at work, there is no change in your proposal terms. This clause applies as long as the windfall occurs after your proposal is approved.

5. What If You Accumulate New Debts?

Reestablishing credit is often a concern after filing a consumer proposal. Although it’s tempting to apply for high-interest payday loans or credit lines from alternative lenders, such practices are best avoided.

5.1 The Risk of New Debts

Accumulating new debts after the filing of your consumer proposal can put you in a tight spot, making the repayment of your proposal challenging. If you miss three payments due to this, your proposal can be annulled.

6. Consult Your Licensed Insolvency Trustee

If you’re struggling due to a financial downturn while in a proposal, it’s crucial to discuss your situation with your LIT. They can guide you about the possible options to handle the situation.

In conclusion, while a consumer proposal offers a fresh start to deal with debts, it’s crucial to be vigilant about your financial situation. In case of any changes, proactively dealing with the situation can save you from potential financial distress.

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