Annulled Consumer Proposal: What It Means and Next Steps

You have worked hard to pull together a plan to tackle your debts, and your consumer proposal has given you a much-needed break from the constant calls and stress of owing money. But then, life throws a curveball—maybe it is a job loss, an unexpected medical bill, or just one too many financial hits all at once.

Suddenly, you miss a few monthly payments, and before you know it, your consumer proposal is annulled. This means that your consumer proposal agreement is no longer in effect. The safety net disappears, creditors are back at your door, and the stress comes rushing in again.

This is exactly what happened to George*. After setting up a consumer proposal to handle his debts and stop wage garnishments, he was doing fine—until a family crisis and job loss caused him to miss payments. His consumer proposal was deemed annulled, and the CRA was once again ready to garnish his wages. George was panicked and overwhelmed, but he was not out of options yet.

When George’s consumer proposal was annulled, he knew he had to act quickly before his financial situation spiraled further. The first thing he did was reach out to his Licensed Insolvency Trustee (LIT), who had helped him set up the proposal in the first place to get back on track to debt relief.

Reasons Your Consumer Proposal Could Be Annulled

While George’s proposal started off smoothly, sometimes life can throw unexpected challenges. Understanding the reasons why a consumer proposal can be annulled is key to avoiding this situation.

First, it is important to understand what happens once a consumer proposal is locked-in, and the reduced payments are formalized officially. When this occurs, the consumer debtor really only has a few responsibilities to fulfill:

• Make a pre-authorized proposal payment each month, on a day specified by the debtor.
• Ensure any missed payments are replaced. The debtor cannot miss more than three payments.
• Attend two counselling sessions with a Licensed Counsellor

Payments come out of the consumer debtor’s bank account every month and are held in trust by the Trustee. Once enough funds have been collected, the Licensed Insolvency Trustee issues a series of payments. This is usually once every six months or once a year.

Now that we know what the responsibilities of the debtor are, we can talk about the common causes of consumer proposal annulment.

Common Causes of Consumer Proposal Annulment

Missing Payments

The most common reason for an annulled consumer proposal? Missing payments. When you sign up for a consumer proposal, you are agreeing to make regular monthly payments. If you miss more than three payments and you have not caught up on those payments by the due date of the third payment, the proposal is automatically considered annulled.

Failure to Meet Other Terms

But missed payments are not the only way things can go wrong. Failing to meet other terms, like skipping mandatory credit counseling sessions, or if creditors raise objections, can also lead to an annulled consumer proposal.

Other Reasons

There are other reasons why a consumer proposal could be annulled. While not as common as missing a payment or counselling session, it can be annulled if the debtor was not eligible for the consumer proposal in the first place, or court approval of the proposal was obtained by fraud.

For George, a combination of tough circumstances—job loss and a family illness—made it harder to stay on track. His income dropped, he missed payments, and after missing three, his consumer proposal was officially annulled.

The worst part? The protection he had from his creditors was gone. Collection calls started again, and the CRA was threatening to garnish his wages all over.

Consequences of an Annulled Proposal

When your consumer proposal gets annulled, things can go downhill fast. First off, all the protection you had from creditors? Gone. They can start coming after you again—collection calls, freezing your bank accounts, even garnishing your wages.

On top of that, it is going to show up on your credit report, meaning your credit rating will take a hit. An annulled consumer proposal sticks around, making it harder to borrow money in the future.

So, getting your proposal annulled does not erase your debt—it just puts you right back where you started, with creditors free to come after you again.

Steps to Revive a Lapsed Consumer Proposal

If your consumer proposal has been annulled, there are steps you can take to try and revive it.

1. Assess the Situation and Identify Issues

First things first, figure out why your consumer proposal was annulled. Were those monthly payments missed because of something like a job loss or another financial bump? Or maybe you did not finish a requirement, like attending those credit counseling sessions? Go back over the legal agreement and your financial situation to find out what went wrong.

2. Consult a Licensed Insolvency Trustee (LIT)

Once you know what happened, get in touch with your Licensed Insolvency Trustee (LIT). They are the ones who can really help you sort out your options. They will go over everything with you and help put together a plan to revive your consumer proposal. If needed, they will even help negotiate with your creditors and might suggest making the proposal more realistic for your situation.

For George, if he had found the money the Licensed Insolvency Trustee requested before the date of his court hearing scheduled, the Trustee could have applied to the court for an order restoring the consumer proposal. But any creditor can file a notice of objection to this process and prevent the consumer proposal from being brought back to life if they believed George might miss his payments again.

3. Develop a New Proposal or Amend Your Plan

If making the original monthly payments is not working, it might be time to revise the proposal. Work with your LIT to come up with a new plan that fits where you are financially. The key is making sure the new plan is something you can stick to. Creditors are more likely to accept if they see a reasonable plan and that you are committed to making it work.

Address Creditors and Negotiate Terms

Now that you have got a plan in place, it is time to talk to your creditors. Whether you are reviving the proposal or creating a new repayment plan, it is important to approach this conversation openly.

Thankfully, the insolvency lawyer hired by George was ultimately successful in his efforts to get the consumer proposal brought back to life by the court, George, as promised, caught up on his missed payments and the Farber team reviewed the court order and allowed the revival to occur.  When this process happens to a consumer proposal it cannot contain any new debt incurred after the original date of filing.  Only the original debts can be included.

If George had continued to suffer hardship and income garnishment, and could not get caught up on his missed payments, his alternative to having his consumer proposal brought back to life could have been the filing of a personal bankruptcy.  In a bankruptcy estate he could have added any new debt he had incurred since the date of the original consumer proposal filing.

Communicate with Creditors

Talking to your creditors is key. You will need to be upfront about what went wrong and explain how you are planning to fix things moving forward. Your Licensed Insolvency Trustee (LIT) will likely handle most of the heavy lifting, but it is good to be prepared to answer any questions they might have. Being honest about your situation can help build trust with creditors.

Offer a Modified Repayment Plan

If the original payments were too high, work with your LIT to come up with a new repayment plan that works for you. The new payments need to be something you can realistically stick to. It is all about showing your creditors that you are serious about paying off the debt and will not fall behind again.

How to Prevent Future Issues with Your Consumer Proposal

Once your consumer proposal is back on track, or you have renegotiated a plan, the next step is making sure you do not run into the same issues again so you can get out of debt fast.

Stick to Your Proposal Terms

The most important thing you can do is stay on top of your monthly payments and any other requirements, like attending the mandatory credit counseling sessions. Scheduling these sessions in your calendar can help ensure that you do not miss them in the future. Afterall, they are included in your consumer proposal and are there to help you build better financial habits! They will help you in the long run.

Missing payments is the quickest way to get your consumer proposal annulled again, so noting the dates in your calendar and setting up automatic payments might be a smart move to avoid missing a due date. The last thing you want is to get your consumer proposal annulled for the same reasons.

Line Up Proposal Payment Dates with Your Pay Days

As the debtor, you can specify which days you want the proposal payments to come out of your account. You can line them up with your pay days to ensure that you have enough money to pay. This will help ensure that you have enough money to pay each time.

Monitor and Adjust Your Financial Plan

Life changes, and so does your financial situation. That is why it is a good idea to regularly check your financial plan and make adjustments if needed. If something comes up—like a job loss or unexpected expense—talk to your LIT right away. They might be able to adjust things before you fall behind. Being proactive is the best way to avoid the stress of dealing with another annulled consumer proposal.

Consider Paying Off Your Consumer Proposal Early

While this option may not be possible for everyone, it is encouraged to pay off your consumer proposal early if you can. You should not feel obligated or pressured to but finishing off your consumer proposal early can help you get back on your feet sooner than later. This means rebuilding your credit rating and being able to say bye to your debt. So, if you have extra money from maybe a bonus at work or birthday gift, maybe consider putting it towards your proposal.

How Farber Can Help

At Farber, we know consumer proposals and debt consolidation inside and out. If your consumer proposal has been annulled or if you are struggling with financial challenges, we are here to help you through it.

Our team of Licensed Insolvency Trustees can assess your situation, talk to creditors on your behalf, and help you come up with a plan that is realistic and doable. Connect with us now and book a free consultation so you can get back on track with your finances.

*George is not the client’s real name. This example is for illustrative purposes.