The consumer proposal and deemed annulmentGinsberg Gingras
The consumer proposal allows you to come to an agreement with your creditors to pay back a portion of your debts. As with a bankruptcy, the consumer proposal allows you to stop the collection calls and put a stop on the climbing interest and get out of excessive debt.
In the case of a consumer proposal, a monthly payment is paid to your Licensed insolvency trustee (LIT) as agreed between you and your creditors. The LIT examines your financial situation and helps you to determine the monthly amount to be paid based on your ability to pay and your other obligations. The consumer proposal is then presented to your creditors who have the option to accept, reject or make a counter proposal. Once accepted, you are required to make monthly payments to the LIT for the predetermined payment period. What happens when you cannot make your payments?
Deemed Annulment of your consumer proposal: what to do?
A default in your payments to the extent of 3 monthly payments will result in the deemed annulment of your consumer proposal as per the Bankruptcy and Insolvency Act. Consequently, you will lose your protection from your creditors, which means that they can resume their collections efforts against you for the full amounts owed to them. This is a situation that needs to be addressed quickly. When your consumer proposal is deemed annulled, there are still some options available to you to remedy the situation:
1. Ask your LIT to revive your proposal
Your LIT has the authority to revive your consumer proposal if you can demonstrate within 30 days of the deemed annulment that you can remedy your default. To reinstate your consumer proposal, the LIT may ask you to catch up your arrears completely and pay the missing amounts. The decision to revive your consumer proposal remains at the discretion of the Licensed insolvency trustee.
Following the annulment of your consumer proposal, your creditors are informed, and they have 60 days after the deemed annulment date of your proposal to oppose its revival.
2. Application at Court to revive your proposal
If your 30-day period has expired before you could rectify the arrears, you can ask your LIT about presenting a motion to have your proposal revived by the Court. The chances of success are good when you can explain the reasons for your non-payment of your proposal, and you can prove that you will be able to complete your proposal without any further delay.
3. File a bankruptcy
If you are unsuccessful in having your consumer proposal revived, either through your LIT or the Court, bankruptcy is a possibility to regain protection against your creditors and settle your debts once and for all. However, it is strongly advised that you consult with your Licensed insolvency trustee for a complete analysis of your file and confirm that bankruptcy is a worthwhile option in your situation.
4. Ask the Court for permission to file a new proposal
If you have accumulated new debt or need additional time, you can apply to the Court for permission to file a new consumer proposal. As this is a rather complex process, you will need a lawyer to present your case.
5. Negotiate with your creditors
The deemed annulment of your consumer proposal allows your creditors to resume contacting you and their collection of your debts, including the retroactive interest which has ceased at the filing of your proposal.
Negotiating with your creditors is always possible, but much riskier. Also, you have no protection against your creditors and the possible judgments and garnishments that may arise from their claims. Also, an agreement or commitment with one of your creditors does not protect you from the others and is not necessarily linked or binding to your other debts. Even with a payment arrangement, you are not safe from creditors and lawsuits.
In any case, if your consumer proposal is annulled, immediately consult a Licensed insolvency trustee to find out the extent of your options. He or she will be your best guide as to what you can do next.