As a rule, it’s not good to default on any kind of debt.
A proposal for an individual – most commonly called a “consumer proposal” – is one of the two ways of addressing a severe debt issue under the Canadian Bankruptcy and Insolvency Act. The other, of course, is bankruptcy.
Using the the services of a Licensed Insolvency Trustee, like Richard Killen & Associates, a consumer proposal is basically a deal that you strike with your creditors to pay back part or all of what you owe, according to your means, either through a lump-sum payment or, more likely, a series of monthly payments. As long as you make the required payments, your creditors can take no action against you.
Once all the payments are made, you are freed from the spectre of your debt.
However, what happens if you miss some of the payments agreed upon in the proposal?
Since the proposal is a legally binding agreement, this would be a serious situation. If you failed to meet the terms of your proposal, especially by missing three months of payments, the proposal automatically becomes annulled. (You can miss up to two payments without triggering this annulment. The missing payments will be tacked to the end of your term.)
With the proposal annulled, your creditors are free once again to start collections and/or other legal proceedings against you. And you may be faced with bankruptcy.
If you start falling behind in your proposal payments and you know that your shifting financial situation is going to make it hard to make them up, then you need to see your trustee and review your situation. You might be able to amend the proposal and solve the problem that way. You might have other options, but you’ll need to see the trustee. He or she can tell you what you need to know.
But fair warning: if you amend your proposal, it will mean that your original one no longer applies. Your amended proposal will have to go through the creditor approval process again, and if your creditors refuse the amended version, you cannot just go back to the original terms.
This is why we at Richard Killen & Associates believe it is critical that we sit down with you at the beginning of the process and work out reasonable terms for a consumer proposal. That is the only way you can have the peace of mind knowing that you are getting your financial life back on track – one payment at a time.