How Do I Avoid a Consumer Proposal Annulment?

Annulment is the legal term that is used when a consumer proposal is cancelled. It may happen in one of two ways.

Automatic annulment – too many payments missed!

First, a consumer proposal will be automatically annulled if the person making the payments falls the equivalent of three months in arrears. In cases where the terms of the consumer proposal require a monthly payment, it is fairly simple to determine if three months have been missed.

Important: This annulment really is automatic, and the rule cannot be bent or waived by anybody, including your trustee (or proposal administrator). As soon as your payments are three months behind, the proposal is dead.

Example:

  • Your consumer proposal’s terms call for a $300 payment on the 15th of every month for 48 months.
  • You have miss the payments for two months.
  • On the 14th day of the third month, you call and say you’ll “drop off the payment on the 16th”.
  • On the 16th, the proposal is automatically annulled. If your payment isn’t in your trustee’s possession on the 15th, it’s too late for anybody to change this.

Court-ordered consumer proposal annulment

The second way that a consumer proposal may be annulled is by Court Order. For this to happen, a hearing must be scheduled so that the Court may decide if cancelling the proposal is the right thing to do. This type of annulment is rare, but it does happen.

A typical example might be someone that fails to file their income taxes after they have filed their proposal. Most proposals include a clause allowing the government to request your proposal be annulled if you fail to file your income taxes.

Serious Consequences

Annulment is a very serious matter, with these consequences:

  • All of your debts are re-instated, including any interest or penalties you could have been charged if you’d never filed the consumer proposal.
  • You may not file another consumer proposal for the same debts without permission from the Court.
  • You have lost the payments you made. The money will be (or has already been) distributed to your creditors. It will not be returned to you.

In most cases, when a consumer proposal is annulled, the individual(s) involved file personal bankruptcy.

What should you do?

If you have already filed a consumer proposal and you find yourself missing payments, we strongly suggest you contact your trustee (or administrator) to discuss whether or not your proposal should be amended (changed) to avoid annulment.