Can You Cancel a Consumer Proposal?

Posted on January 8, 2024 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee
Can You Cancel a Consumer Proposal

Financial difficulties can be overwhelming, and a consumer proposal might offer a workable debt relief option for many people. With a consumer proposal, you can make a manageable monthly payment to your unsecured creditors while stopping interest payments for up to five years. A consumer proposal is an effective approach to settling your debts if you cannot pay them.  off completely.

But what if circumstances change that make you need to withdraw or cancel the proposal? Or worse, if the court rejects the consumer proposal? In this guide, we’ll explore an In-depth discussion of consumer proposal cancellation, the court’s role in the procedure, and the possible repercussions.

How can a consumer proposal be cancelled?

There are a few ways to end a consumer proposal, giving debtors other options for resolving their financial issues. A consumer proposal may be cancelled in the following ways:

  • Voluntary Withdrawal: Before the court considers the consumer proposal to be accepted or before the court hearing for approval, debtors may decide to withdraw it. 
  • Bankruptcy filing: In some circumstances, debtors may discover bankruptcy is better than continuing with the consumer proposal. 
  • Missing Payments: If a debtor misses three consecutive payments, the Licensed Insolvency Trustee (LIT) will be required to annul the consumer proposal as if required in the legal legislation.
  • Court review and Refusal: An interested party may ask the court to evaluate a consumer proposal, such as a creditor. The court may withhold approval of the consumer proposal or revoke it if necessary based on the evidence revealed during the review.

When can you withdraw a proposal?

A consumer proposal offers debtors choice in their financial decisions because it can be withdrawn within a set time frame. A consumer proposal filed has a 60-day withdrawal window, which includes the 45 days required for the creditors to vote on it and an additional 15 days for the court to approve it. During this period, you can change your mind and decide whether to withdraw the proposal.

However, you are no longer entitled to withdraw once the court has accepted your consumer proposal. The proposal is now legally binding, and you are required to follow the specified repayment period. A court-approved proposal may only be cancelled by repaying the payments, missing three consecutive months of payments to allow it to become annulled, or filing for bankruptcy.

When can the court cancel a consumer proposal?

Most consumer proposal lawsuits don’t necessitate a court hearing. The court considers the consumer proposal approved within 15 days if the creditors accept it, and no formal court procedure is required. 

In some cases, the need for a court hearing does arise. For instance, The Office of the Superintendent of Bankruptcy or a concerned party may ask the court to assess the consumer proposal within fifteen days of the creditor’s acceptance. This system ensures that interested parties can request additional evaluations if necessary.

The court can disapprove or reject a proposal filing

The court is essential in the consumer proposal process because it can accept or reject the proposal depending on the evidence provided during the hearing. The proposal may not be approved if the court determines its conditions are unfair or unreasonable to the debtor or the creditors.

Best Dept Consolidation Plan

In Canada, the court may also reject a consumer proposal if it finds that the debtor violated the Bankruptcy and Insolvency Act (BIA) (S. 198-200) or the debtor was not eligible to submit a consumer proposal.

How the court can annul an active consumer proposal

Even if a consumer plan is approved initially, the court can still annul the proposal later. Reasons for a consumer proposal annulment include if the debtor broke a bankruptcy law, wasn’t qualified to file one, got approval through fraudulent means, or the proposal was unable to move forward without causing injustice or unnecessary delay.

What happens if your consumer proposal is cancelled?

For debtors, having a consumer proposal cancelled might cause serious difficulties. The debtor loses the right to protection from creditors, and earlier debt agreements revert to being enforceable if the proposal is rejected. As a result, the debtor may have to deal with legal action taken by creditors seeking to recoup unpaid debts. Debtors can seek expert guidance and consider other debt management solutions to navigate the situation.

The repercussions of terminating or annulling a consumer proposition are severe and may endure lasting impacts:

  • Payments are Lost: The debtor’s contributions to the consumer proposal are lost. Instead, these funds can pay licensed insolvency trustee fees; creditors receive dividends depending on the total paid. 
  • Debts Recur: If the consumer proposal is rejected or revoked, the worst-case scenario is that the debtor’s debts recur. Creditors regain their rights to demand payment of the total amount due, plus interest incurred from the proposal date, less any payments received from the proposal.
  • Future Proposals Restricted: If the consumer proposal is dismissed, the debtor cannot submit another one for the same debt without the judge’s permission.
  • Limited Debt Resolution Alternatives: In the event of cancellation, the debtor’s alternatives for resolving their debts are severely constrained. Options include declaring bankruptcy, clearing debts independently, or letting the debts go into collection.

Cancelled vs Rejected vs Annulment 

Although “cancelled” isn’t a term in the Bankruptcy and Insolvency Act, here are some definitions regarding cancelling a consumer proposal: 

Cancelled

The informal term “cancelled” is frequently used to describe the early cancellation of a consumer proposition. If your financial condition significantly changes, you could consider cancelling a consumer proposal. A Licensed Insolvency Trustee should be consulted to determine the best action. To manage debts successfully, amending the consumer proposal and carrying it out may still be possible.

Rejected

A consumer proposal is a deal that debtors make with creditors. At the start of the consumer proposal process, unpaid creditors have 45 days to decide whether to accept or reject the offer. In many situations, creditors may make a counteroffer or suggest a different amount they would be willing to accept. During this time, the Administrator of the customer proposal and the debtor can negotiate an agreement. But in rare cases, if there is no agreement, the payment plan will be seen as being rejected by the creditors.

Deemed Annulled

Many consumer proposals require monthly payments for up to five years. Failure to make payments on your consumer proposal for three consecutive months will result in the proposal being “deemed annulled.” If you have a consumer proposal that doesn’t require payments every month, and you go more than three months without making any payments, the proposal is considered to be annulled. 

Court Annulled

Under specific circumstances, the court also has the right to reject your consumer proposal. A court may annul your consumer proposal if you are not eligible to file one. If the court decides that moving forward with the proposal would cause injustice or result in excessive delays, it may also annul it. Furthermore, if it is determined that the consumer proposal was granted court permission by fraudulent means, the court may decide to annul the proposal.

Can you remove a consumer proposal from a credit report?

If you file a consumer proposal, it will stay on your credit record for over six years from the time of filing or three years from the completion date. 

You can begin raising your credit score even before your agreement is finalized. To accomplish this, you can pay in a lump sum or, more frequently, monthly. If you pay off the consumer proposal early on, it will remove the notice from your credit record.

Setting your proposal up for success 

It is crucial to set up successful consumer proposals. Credit card debt, student loan debt, tax debt, and payday loan debt are unsecured debts that can be settled through this method. It is essential to work closely with your Licensed Insolvency Trustee to develop reasonable proposal terms. Your trustee will help you weigh other debt-relief options like debt consolidation and credit counselling to help you reach an informed choice. 

Unless there is an immediate reason, such as stopping a pay garnishment, you should carefully evaluate the repercussions of filing a consumer proposal before making any decisions. Avoid making immediate decisions because doing so can lead to regret.

The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well-informed and don’t rush into any solutions. All of our consultations are free, without time limits.

Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

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Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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