How to Come Back After Failing to Make Your Consumer Proposal Payments
After months or years of struggling with debt, you finally find a light at the end of the tunnel in the form of a consumer proposal, only to find yourself unable to keep up with the required payments.
When this happens, it can be incredibly distressing, as the possibility of bankruptcy becomes more and more real. However, it’s important that you remain calm and seek guidance from your Licenced Insolvency Trustee (LIT). Because, contrary to how you may be feeling right now, you do have options.
To help you better understand what happens when you are unable to make your consumer proposal payments, we’ll dive into the topic of annulment, explain how you can revive an annulled consumer proposal, and offer tips for getting back on track.
What Is a Consumer Proposal?
First, let’s back up a bit and explain what a consumer proposal is.
A consumer proposal is a debt settlement agreement and legal process regulated by the federal government and negotiated between your unsecured creditors and a LIT.
Under the terms of a consumer proposal, you will likely pay back a reduced amount of what you owe to your creditors, interest-free, over an agreed upon length of time. However, keep in mind, a consumer proposal must be completed within 5 years.
The settlement and payment terms will be discussed and agreed to by yourself and the LIT, who will present the terms of your offer and consumer proposal to your creditors.
Payments are typically flexible, and can be structured in a variety of ways, such as:
- Fixed monthly or biweekly payments
- Variable payments
- Step up payments that increase over time
- Step down payments that decrease over time
- Lump-sum payments
- Payments from the sale of assets
What Happens If You Cannot Make Payments?
While the payment terms of your consumer proposal will be determined by taking into consideration your current financial situation, sometimes, life happens. Whether you’ve been laid off, accepted a demotion, or are faced with unexpected expenses, it’s common to find yourself in a position where you are unable to afford the consumer proposal payments you had initially agreed to.
If this happens, your first step should be to meet with your LIT to go over your options.
Here are a few avenues your LIT may suggest if you are struggling to afford your consumer proposal payments.
Amending Your Consumer Proposal
A benefit of consumer proposals is that they are not set in stone and can be amended. If the payment terms you originally agreed to with your creditors are no longer affordable, you have the right to file an amended consumer proposal.
While there are no additional fees to amend a consumer proposal, there is some risk involved. Your creditors have the right to refuse your requested amendment, which can lead to the cancellation of your consumer proposal. However, remember, it is in the best interest of your creditors for the consumer proposal to succeed, so they will likely be flexible and allow the amendment.
If you find yourself in a bind and cannot make one of your consumer proposal payments, the law allows you to miss and defer two payments without consequence. This will give you some time to get back on track.
If you default on at least 3 months of payments, your consumer proposal will be deemed to be automatically annulled on the day that your third missed payment was due.
What Is an Annulment?
Annulment is the cancellation of your consumer proposal due to defaults on payments, or by court order.
This means that the consumer proposal will no longer be in force, and you will lose the protection from creditor collection actions and collection agents.
Upon annulment, your obligation to pay your debts will be re-instated, including the addition of any interest or penalties you would have incurred, if you had not filed the consumer proposal.
Fortunately, even if a consumer proposal is annulled, this doesn’t mean you automatically have to file for bankruptcy.
After a consumer proposal is deemed annulled, there is a 30-day window, during which the consumer proposal can be revived with the agreement of your creditors. The court may also revive an annulled consumer proposal.
During these situations, creditors tend to be understanding, as it is in the best interest of all parties for the consumer proposal to continue. After all, the main goal is to ensure your creditors are paid, and you get back on track and avoid bankruptcy.
Filing a Second Consumer Proposal
In some cases, reviving a consumer proposal may not be possible, and a second proposal must be filed. This requires that a court order be obtained to permit the filing of a second consumer proposal. Your LIT will advise you on what must be done.
Can You Convert a Consumer Proposal to a Bankruptcy?
If all other options have failed, bankruptcy may be your best course of action to regain protection from your creditors and to settle and extinguish your debts.
Again, make sure you consult with your LIT to ensure that bankruptcy is the best option.
How to Avoid Defaulting on Your Consumer Proposal
Set a Budget and Cut Costs
Before you get to the point where you are unable to afford your consumer proposal payments, it’s crucial that you take a hard look at your finances, work out a strict budget, and cut back on most, if not all, non-essential spending.
Examples of non-essential spending include:
- Eating out at restaurants or ordering takeout
- Taking rideshares like Uber or taxis to get around
- Impulsive shopping
- Grabbing an expensive coffee or two every day
- Frequently going to the movies or a concert
- Expensive gifts to friends or relatives
Budgeting should also continue throughout your consumer proposal to help ensure that you will not default on payments.
Make Extra Payments When Possible
As previously mentioned, consumer proposal payments are often flexible, and allow you to make lump-sum payments to help pay off your consumer proposal sooner.
So, if you are fortunate enough to receive an unexpected influx of cash, use it to make a one-time lump sum payment on top of your monthly payments.
This can include:
- An inheritance
- Bonus at work
- Tax refund
- Lottery win (Yeah!)
Set Payments Based on Pay Frequency
Whether you get paid weekly, bi-weekly, or monthly, or you work as a freelancer or contract worker and don’t have a consistent pay schedule, make sure your payment terms are based on when you get paid. The LIT will assist you with this.
This will help improve your chances of completing your consumer proposal payments, as the money will essentially be coming right off your paycheck, rather than sitting in your bank account and giving you the opportunity to spend it elsewhere.
While we don’t want you to slip into bad habits and get behind on your payments, we also understand that life happens. Which is why it’s important to know that if your financial situation changes at any time during your consumer proposal, you have options available to you. Be sure to speak with your Licensed Insolvency Trustee to determine your best course of action.
Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!