Pitfalls, Failed Plans and Official Sources
Missed consumer proposal payments: deemed annulment, revival and what to do
What happens in Canada when you miss consumer proposal payments, the three-payment annulment rule in BIA s. 66.31, amendments, revival and the consequences of a failed proposal.
If your consumer proposal has monthly (or more frequent) payments, it is deemed annulled on the day you are in default by an amount equal to or greater than three payments; if payments are less frequent than monthly, it is deemed annulled three months after the first missed payment (Bankruptcy and Insolvency Act, s. 66.31). Annulment ends the protection: the stay of proceedings lifts, creditors can resume collection, and the debts revert to their original balances, less what they received under the proposal. You can avoid this by filing an amendment before the third missed payment, and in some cases an annulled proposal can be revived. A deemed annulment does not undo payments already distributed.
Part of debt relief mistakes and official sources. General information, not legal advice.
How the three-payment rule works
The test is the amount in default, not the number of months. With monthly payments of $300:
| Month | Paid | Total in default | Status |
|---|---|---|---|
| 1 | $300 | $0 | Fine |
| 2 | $0 | $300 | One payment behind |
| 3 | $300 | $300 | Still one behind |
| 4 | $0 | $600 | Two behind |
| 5 | $0 | $900 | Three payments in default: deemed annulled |
Catching up after one or two missed payments brings you back into good standing. Partial payments count toward reducing the default. Ask your administrator how your arrears are tracked; the OSB's own guide describes the rule as missing three payments.
What annulment means
- The stay ends. Unsecured creditors can sue, garnish wages and resume calls.
- The debts revive. You owe the original balances, minus what each creditor received, and creditors may claim interest according to their contracts.
- No automatic bankruptcy. Unlike a Division I proposal, an annulled consumer proposal does not make you bankrupt, unless you were already bankrupt when you made it. But under s. 66.32, unless a court orders otherwise, you cannot make another consumer proposal, and you lose the stay protections, until the claims proved in the annulled proposal are paid in full or extinguished. Creditors' claims revive for their full amount less the dividends already received.
- Credit report. The failed proposal is reported. According to the FCAC, a proposal is removed 3 years after it is paid off or 6 years after signing, whichever comes first; check how a failed proposal is recorded with the bureaus.
- What stays done. Payments distributed, property sold and guarantees given under the proposal remain valid (s. 66.31(5)).
How to avoid it
Talk to the administrator early
As soon as you see trouble, such as a job loss, illness or a large repair, call the trustee. Options include:
- An amendment to the proposal: lower payments, a longer term (up to the five-year maximum) or a pause. An amendment filed before the deemed annulment date stops the annulment while creditors consider it. If the amendment is withdrawn or refused, the proposal is deemed annulled on that date (s. 66.31(2)).
- Catching up with a lump sum, for example from a tax refund.
- Restructuring your budget with the counsellor.
Build a buffer from the start
Offer a payment that leaves room for irregular costs. A proposal that is $40 a month lower but survives five years is worth far more than one that fails in year two. See sizing a proposal offer.
Use automatic payments
Pre-authorized debits timed for just after payday avoid accidental misses.
Revival
Section 66.31(6)–(9) also provides for revival of a deemed annulled proposal of a debtor who is not bankrupt. The administrator may send creditors a revival notice within 30 days after the annulment; the proposal is then revived 60 days after the annulment unless a creditor objects. The administrator can also apply to the court at any time for a revival order on terms the court considers appropriate. If the proposal was made by someone who was already bankrupt, the debtor is instead deemed to have made an assignment in bankruptcy on the annulment day (s. 66.31(4)). Revival needs the arrears to be dealt with and creditors not to object. The OSB says annulled proposals may be revived under certain conditions; ask the administrator immediately if you have just been annulled.
Illustrative case
Nadia's proposal: $425 a month for 48 months. In month 31 she was laid off and missed two payments, leaving 20 payments ($8,500) to go, including the two missed. Before a third payment was missed, her administrator filed an amendment: $300 a month for 26 months, $7,800 in total. That brings the whole proposal to 58 months, inside the five-year maximum. Creditors did not request a meeting, so the amendment was deemed accepted, and she completed it. Creditors received $700 less than originally agreed, but much more than they would have collected after an annulment. Had she waited for a third missed payment, the proposal would have been deemed annulled and collection could have resumed. The figures are hypothetical.
Comparing the outcomes
| Amend in time | Let it be annulled | |
|---|---|---|
| Stay of proceedings | Continues | Ends |
| Balance owed | Proposal amount (possibly reduced) | Original debts minus payments received |
| Next step | Keep paying | Collection, possibly a new proposal or bankruptcy |
| Credit report | Proposal completes | Failed proposal, then new events |
Related: after a failed proposal, check how it shows on your credit report, and note that the stay of proceedings ends with the annulment.
Frequently asked questions
Do I lose what I already paid?
The money already distributed reduces what you owe each creditor. It is not refunded.
Can creditors take my house after annulment?
Unsecured creditors would have to sue and obtain a judgment, then enforce under provincial law. Secured creditors, such as your mortgage lender, are separate.
Can I file for bankruptcy after an annulled proposal?
Yes. Some people do, especially if circumstances have changed so much that no proposal is workable.
What if I miss payments because of the administrator's error?
Contact the administrator in writing at once. If it is not resolved, you can complain to the OSB.
Sources
- Justice Laws Website — BIA s. 66.31 (deemed annulment, amendment, revival) and s. 66.32
- Office of the Superintendent of Bankruptcy — consumer proposals: what happens if you miss payments
- Financial Consumer Agency of Canada — consumer proposals on your credit report
