What happens if your income changes after filing a Consumer Proposal

One of the biggest benefits of a Consumer Proposal is predictability. Your payment is set out in the proposal and doesn’t automatically change just because your income fluctuates. That consistency can make budgeting easier, especially if your income is steady. But what happens if your income is reduced after filing?

If this happens, and you’re struggling to make your proposal payments, it’s critical to speak with your Licensed Insolvency Trustee (LIT). Missed payments can put your proposal at risk but you may be able to catch up and continue.

Under the Bankruptcy and Insolvency Act, a Consumer Proposal is generally deemed annulled if you fall behind the equivalent of three monthly payments. This number is calculated based on total arrears and not necessarily three missed payments in a row. Once a proposal is annulled, the legal protection from creditor collection action might end.

What to do if you know your income is going to decrease

If you expect your income reduction to go on for a while, contact your LIT as soon as possible. The earlier you reach out, the more options you may have to avoid an annulment.

If the change in your income is longer term, your trustee can discuss whether an amendment and/or an extension might be an option. In general, amendments must be filed and are subject to creditor approval, and sometimes even court approval depending on the circumstances.

When might an amendment or extension be feasible?

There are two common scenarios where an amendment or extension of your proposal might work:

• If you can still make payments but you need a lower amount because of reduced income or higher non-discretionary expenses such as childcare, medical costs, or support payments.
• If your proposal isn’t already set at the maximum term. A Consumer Proposal can not run longer than 60 months (five years), so an extension is only possible for terms already less than that period of time and if creditors approve the change.

When might an amendment or extension not be feasible?

There are four common situations where an amendment or extension of your proposal might not work:

• If you are already in arrears by the equivalent of three monthly payments and the proposal has been deemed annulled. In this situation, your LIT would first need to explore whether the proposal can be revived before an amendment can proceed.
• If your proposal is already set to complete within the maximum 60-month period. You generally cannot extend the proposal beyond that time.
• If you are at (or near) the 60-month mark and can’t make the remaining payment(s).
• If you don’t have the ability to make any payments going forward. In this case, an amended proposal may not be possible. Your LIT can help assess and explain further options to you.

What to do if your income increases or you receive a lump sum during your proposal

In most Consumer Proposals, your required payment does not automatically increase if your income increases. If you come into extra money, you can typically make extra payments or pay the proposal off early, and there is generally no penalty for doing so.

Finishing sooner may help you move forward faster, just make sure the extra payment fits your overall budget.