Repaying debt requires a stable income. Even when you’re in a debt relief plan like a consumer proposal, you need money coming in each month to make your payments. But what if you are faced with a sudden job loss and can no longer keep up with payments on your consumer proposal? Could you revive it after you find another job? What if you don’t find work until after several months, could you restart your proposal then?
My guest today says it is possible to revive a consumer proposal. Richard Howell is a bankruptcy lawyer, certified by the Law Society of Upper Canada. He has over 20 years of experience helping people resolve this exact issue, and has yet to face a situation where a proposal could not be restarted.
According to the Bankruptcy and Insolvency Act, a consumer proposal is deemed to be annulled if the consumer debtor is more than 3 months behind in payments. A proposal can be revived automatically within 30 days of its annulment, but if you aren’t able to restart it until after this 30-day period, you would have to go to court.
Richard says the court is generally understanding:
The court’s not too harsh on these things because after all the creditors have agreed to this proposal to start. It’s in everybody’s interest that the proposal carry on and that the creditors get paid and that the debtor gets back in the saddle. So it normally goes through.
Steps to Revive a Consumer Proposal
Richard outlines the process for reviving your consumer proposal with a bankruptcy lawyer after the 30-day post-annulment period when you are once again able to start making your debt payments:
- Discuss financial situation – What’s changed in terms of your cash flow? A bankruptcy lawyer would need your statement of income and expenses.
- Request documents from your Trustee – These would be the creditor’s package, the estate general ledger, and the notice of default.
- Prepare an affidavit and motion materials to go to court.
It can take about a month to get your court date, and then you go to court, present your case, and as mentioned, often the court is open to the situation and will reinstate your proposal as it was before annulment:
I think I’ve done 50 or 60 of these things and I haven’t lost one yet.
There are cases in which a revival is not possible, but instead, a second consumer proposal is filed:
We typically do that after, when it’s too late to revive for example. If the default was at the end of a proposal, a five-year proposal and they don’t come to see you until a year later, you can’t revive it at that point.
The Bankruptcy and Insolvency Act says that a consumer proposal must provide for its completion within 5 years. Therefore, if you are seeking to revive your proposal after the 5-year mark, you’re more likely to file a second consumer proposal instead.
At the end of the day, no matter how complicated a consumer proposal revival is, Richard says where there’s a will, there’s a way:
Getting debtors back on their feet and making the world go around is the function of the bankruptcy court.
How to Avoid Defaulting on Consumer Proposal Payments
When you file a consumer proposal at Hoyes Michalos, we help you avoid defaulting on payments because of a life emergency like a job loss or illness in 4 ways:
- Make the proposal affordable – In most cases, we make your proposal payment a lot less than what you were paying on all of the minimum payments on your debts.
- Time the proposal at your convenience – You may decide to wait two weeks to get caught up on your rent or hydro bills before starting your proposal payments. We let you pick the start date of the proposal that works best for you.
- Match payments with pay frequency – Although proposals are setup as monthly payments, we strongly recommend that you set your payments to match your pay frequency and that they are done electronically. This way, you never have to worry about forgetting to make a payment, falling behind, or having a bounced cheque.
- Encourage making extra payments – Whenever you have extra cash like a tax refund, we recommend taking a portion to make extra payments on your proposal. This allows you to repay your proposal sooner. If you get a raise at work or can afford to increase your payments, you can bump them up at any time.
We work with you to increase your chances of success on completing your consumer proposal and avoid falling behind and having to revive it.
For more technical details on how courts handle consumer proposal revivals, tune in to today’s podcast or read the complete transcription below.
Resources Mentioned in the Show
- Richard Howell Contact Information
- Should you File a 100% Consumer Proposal to Consolidate Debt?
- Second Bankruptcy or a Consumer Proposal?
FULL TRANSCRIPT – Show 197 How to Revive a Consumer Proposal
Doug Hoyes: Today on Debt Free in 30 we’re going to cover a topic we have never covered before, consumer proposal revivals. Allow me to explain. Listeners to this podcast are very familiar with consumer proposals. It’s a deal we make with the people you owe money to to eliminate your debt. I didn’t invent it, it’s based on federal law and it’s designed to help people with too much debt avoid bankruptcy. Because it’s based on federal law, there are rules which you can find in the bankruptcy and insolvency act. For example, in subparagraph 66.31 Sub1 Sub A, it says that a consumer proposal is deemed to be annulled if the consumer debtor is more than three months behind in payments. That makes sense.
In a typical consumer proposal, you pay a set amount each month over maximum of five years. If you get three months behind in your payments, obviously something has gone wrong so the consumer proposal can’t continue. What could go wrong? Job loss is a big one. If you lose your job, your income drops and you can’t make your payments. But what happens if your job loss is temporary? What if you get laid off for three months and then go back to work? Is there any way to restart a proposal?
I’ll have a detailed answer at the end of this podcast on how we deal with people in a proposal who lose their job or have other interruptions in their income here at Hoyes Michalos but there is a legal answer to that question. Subparagraph 66.31 Sub7 of the Bankruptcy Insolvency Act allows for an automatic revival of a proposal. If you get three months behind and the proposal is annulled but within 30 days you can get back on track, I, as the administer of your proposal, can send a notice to your creditors asking for it to be revived and if no one objects, the proposal is back on.
But what if the creditors say no or what if you can’t get back on track until after the 30 day automatic revival period? Well, there is another option and that is to go court and ask the court to revive the proposal. How does that work? I’ve got an insolvency lawyer with many years of experience to answer that question. So, let’s get started, who are you and where do you work?
Richard Howell: I’m Richard Howell. I’m a bankruptcy lawyer, certified by The Law Society of Upper Canada as a specialist. I’m a partner at Clark Farb Fiksel in Toronto and I’ve been doing this for a lot of years.
Doug Hoyes: Many years. So, let’s talk about consumer proposal revivals. So, we’ve talked about consumer proposals many times on this show before. It’s a deal you work out with your creditors, it’s obviously part of federal law, the typical proposal is you’re paying a certain amount of money each month over a period of up to five years. If you get three months behind in your payments, and I’m over simplifying this slightly but let’s just take the typical case, then your proposal is annulled. It’s dead. That’s it. There is a provision in the act that says a proposal can be automatically revived if you can basically bring it up to date. You’ve only got 30 days after the annulment to do that though. In other words, you’ve got to contact the creditors, nobody can object and so on.
What we’re talking about today is what happens if my proposal is annulled because I got three months behind in my payments and I’m not able to automatically revive it in that additional 30 day period. Well the only way to bring the proposal back to life is to get the court to say that you can do it. Am I correct in that what I just said there?
Richard Howell: Exactly.
Doug Hoyes: Okay, so how does this process work then? So let’s say I’m in that situation and maybe you can kind of paint the picture for me of someone who would be in that situation. I mean off the top of my head I would think that it’s somebody who things were going along okay, they were able to make a bunch of the payments to the proposal and then something happened, they lost their job, they got sick whatever and as a result got so far behind that the proposal was annulled. But now they’re in a position where things have improved again. They’re back to work, their health has improved or something. Is that kind of the typical scenario of someone in this situation?
Richard Howell: Exactly. I guess the first question is the proposals must be performed within five years or if it’s a shorter period on the proposal, that is it if it’s a three year proposal, within the period of the proposal, which means if the default is in the fourth year but there’s a lot of money still owing, typically these defaults don’t get caught with some trustees for awhile. If you owe five grand for example on a proposal that was 500 a month and you’ve got three months left o pay to the end of the proposal that’s going to be very hard. You’re going to have to come up with the five grand in that period.
Doug Hoyes: So what you’re talking about is this has to make sense. Okay, so let’s go through the scenario then. So let’s assume that I’m somebody, my proposal has been annulled, it’s past the automatic revival period but I would like to bring it back to life again. And let’s assume that my trustee says okay, well you’re better off going to talk to a lawyer then who could make this application for you. So, they phone you up and they say hey, Richard Howell, I would like to go court and have this – my proposal revived. What kinds of questions are you going to be asking me? And obviously you kind of sketched it out, does this make sense is really the main question I guess.
Richard Howell: Yeah, why if you couldn’t pay then what’s changed? I’m going to need a statement of income and expenses assuming that they sort of pass the this makes sense on the phone. I’ll be contacting their trustee just because it’s more expeditious and get the trustee to scan me over the creditor’s package, the estate general ledger and the notice of default. They’ll come in, at that point we’ll look at it and we’ll – I’ll find out just what caused the defaults and what they’re going to do about it and how.
Doug Hoyes: Is it fair to say that the typical revival is happening for a proposal that still has two or three year, four years left to run on it? I mean as you said if I’m $5,000 behind and the rule is a proposal must be completed within five years, and that’s five years from when it started obviously, so okay I’ve got to come up with $5,000, $10,000 in the next three or four months. The chances of success are less likely. So is it fair to say that the typical revival is happening, you know, in the first half of the proposal period as opposed to right at the end or am I not correct in that?
Richard Howell: They seem – in my experience they’re all over the map. I’ve had some sort of sad cases where they’ve got down to the last couple of payments. They may have paid 10 or $15,000 and there’s $800 to go and the proposal’s annulled, some cheques bounce or some oversight and it costs them for going, the lawyer’s fee, to go back to court and get a revival. They can’t just march in with the $800 and say here you go. But yeah, on the other hand I’ve got one I think this month where they made three payments on the five year proposal.
Doug Hoyes: And it’s already been annulled. So in that case I mean if I’m the court my obvious question, and you already asked it earlier, how does this make sense? If you made three payments and now it’s been annulled meaning you missed at least three more payments, so you missed at least half of the payments or else it wouldn’t have been annulled and we’re past the automatic revival period. I assume the court’s going to be asking the same question, does this make sense?
Is that how – actually before we talk about the court, so let’s kind of wrap up then I come in to see you, you’re going to ask me for some information, you know, what’s my budget look like at the moment, get the documents from the trustee and then from there you’re going to prepare I guess an affidavit and motion materials to go to court, is that what happens?
Richard Howell: Exactly. We haven’t quite got the dog ate my homework as an excuse stage, but there’ve been a number that just inadvertence or they changed bank accounts or things like that. The court’s not too harsh on these things because after all the creditors have agreed to this proposal to start. It’s in everybody’s interest that the proposal carry on and that the creditors get paid and that the debtor gets back in the saddle. So it normally goes through.
Doug Hoyes: Okay so, it normally goes through. So you prepare all the paperwork, you go to court and I assume it takes, I don’t know, a month or whatever to get the court date. You’ve got to serve notice and something like that, roughly that. And obviously it, you know, it can vary. You go to court, you present the arguments. And in most cases in your experience like you said, the court is amenable to this because hey, the creditor has already said yes and all we’re asking the court to do is put us back to where we were had we not defaulted.
Richard Howell: Exactly. I think I’ve done 50 or 60 of these things and I haven’t lost one yet. I’ve had a couple of near misses but normally I get – well, I’ve been getting the orders.
Doug Hoyes: It’s been working. And so it would be unusual for somebody to object to it then because if I’m a creditor and it goes through I’m going to get all the money that I agreed to take originally. There’s really not a whole lot of point in objecting to it I guess.
Richard Howell: That’s right. Well, I’ve never seen an objection in any of these. Typically their credit card debt and they’re already at collection agencies and nobody’s going to bother, they never answer on them.
Doug Hoyes: Okay and even though you’ve served them obviously. You’ve notified the creditors that this is happening. And yeah in my experience it’s exactly the same. The proposal gets filed, we send it to the bank and the bank says okay, we’re going to agree to this proposal and then we’re going to, you know, shuffle the debt off to a different division or a collection person or a debt buyer or something because we already know what we’re going to get, we don’t really need to monitor it.
So if something goes off the rails later on, the bank’s already kind of written it off notionally, so they’re not really paying that much attention that requires them to send lawyers to court to object to something because if they object it probably just means the person’s going to end up bankrupt anyway, is that would what if the proposal wasn’t revived?
Richard Howell: Or they just go off to the never, never land.
Doug Hoyes: They just do nothing. So, once a proposal is annulled, and assuming that it’s not revived, you cannot file another consumer proposal on the same debts, is that correct?
Richard Howell: Without leave of the court.
Doug Hoyes: Without court approval. Okay, so if my proposal’s annulled I’ve got two, well I’ve got many choices I guess. I could do nothing I could go bankrupt but I could also have my proposal revived, which is what we’ve been talking about, I could go to you and see if the court will put it back where it was. Or I could go to court and ask the court to let me file another proposal.
Richard Howell: Exactly. We typically do that after, when it’s too late to revive for example. If the default was at the end of a proposal, a five-year proposal and they don’t come to see you until a year later, you can’t revive it at that point.
Doug Hoyes: Because the rule, The Bankruptcy and Insolvency says a consumer proposal must provide for its completion within five years.
Richard Howell: Exactly.
Doug Hoyes: If we’re already at year six it’s kind of hard to revive it then.
Richard Howell: But where there’s a will there’s a way and the courts have been making orders allowing the filing of a second consumer proposal. And that’s a little bit of a windfall for the debtor because they can run around and gather all post proposal debt and put it into the new proposal.
Doug Hoyes: So let’s think this through then. So I filed a proposal and I owed, you know, five different credit cards let’s say. The proposal two or three years later is annulled and during that time period I have incurred new debt. Maybe I’ve got a payday loan, maybe I owe some money on taxes, maybe I was actually able to get a credit card that I’ve now defaulted on. So if I revive the original proposal, only the debts that were there at the start are included. But if I file a second proposal then all the debts I have as of that date are included.
Richard Howell: Exactly.
Doug Hoyes: And so if I’m coming in to talk to you to get advice. So let’s say I’m three years into the proposal and it’s been annulled, so should I revive it or should I get permission to file a second proposal? How would you advise me on that decision?
Richard Howell: If you had a revivable proposal during the period that was possible to revive that is if it wasn’t so much money that you couldn’t do anything, I’d tell you to do the revival. I’m not totally comfortable with the fresh proposal picking up a whole new whack of debts. But it’s currently working. I would guess if you did it during the revivable proposal you’d get some flak from the court.
Doug Hoyes: Because the court is going to say look, there’s already this other process there, do that and get that done. So now I guess if I’ve somehow incurred a lot of new debt, maybe tax debt for example then okay I can see why you’d want to do a second proposal but with a second proposal the creditors then get to vote on it.
Richard Howell: Yeah, the creditors can say nothing doing but again you get the same voting results from the first.
Doug Hoyes: Well, if there’s a whole bunch of new debt so let’s say I had $50,000 worth of credit card debt that proposal’s been annulled and now over the last three years I’ve somehow managed to incur $50,000 worth of Revenue Canada debt, maybe because of a tax reassessment or I cashed in a bunch of RSPs or whatever happened. Well now if I do get permissions to file a second proposal I’ve now got a new voting block from Revenue Canada and that makes it a lot riskier.
Richard Howell: Indeed. But if you’ve incurred the 50 at Revenue Canada they’re going to be on your case anyway and you’re likely going to be doing something different rather than a new consumer proposal.
Doug Hoyes: Got you so it’s a much riskier option. So your advice then is to, you know, your advice in a situation like this once the annulment has happened is to talk to a lawyer and figure out what the options are I guess then. And obviously there’s a cost for doing this, I assume the cost will vary depending on the complexity of the case, is it a relatively standard thing, how does it –
Richard Howell: It’s relatively standard. If it’s got a lot of hair on it – if I’ve got to go back for example, I’ve had a couple where the registrar wasn’t happy with them and we had to file fresh evidence and that cost a little bit more.
Doug Hoyes: So in most cases if a debtor phones you up you’re able to give them a, you know, reasonable idea of what this is going to cost upfront then.
Richard Howell: Oh yeah, absolutely.
Doug Hoyes: And I would assume that people who have to revive a proposal, the proposal was annulled because I didn’t have money, I wasn’t able to make the payments. So what kind of payment arrangements are they then going to be able to make with you?
Richard Howell: Really what they’re able to do within reason. I’ve had them stretch over several months.
Doug Hoyes: So you would love it if they would get their parents to give you a cheque and just pay for it upfront but it’s more typical that you’ll take something upfront and then there’s payments over a period of time.
Richard Howell: Well, I hope it’s not too typical but yes.
Doug Hoyes: That’s just kind of the nature of the business. And most of the hearings that you do would be in Toronto court and we’re recording this at my office at Yonge and Bloor today, which is not that far from the courthouse, is the process similar in other jurisdictions? So for example if I was, you know, going to the court in Kitchener or London or Windsor or Ottawa is it basically the same type of approach in your view?
Richard Howell: Yeah, very much so, at least, yeah.
Doug Hoyes: It’s a fairly standardized thing.
Richard Howell: I can’t speak to Ottawa but I imagine – I know the bankruptcy judge up there and he’s a very practical person and they’ll be doing the same thing I’m sure.
Doug Hoyes: So you mentioned the word practical, is that how you would characterize most of these hearings then, that, you know, the judges aren’t out to, you know, it’s not a game of got you. It’s more as they say a business person statute and they’re trying to find the reasonable resolution?
Richard Howell: Absolutely. Getting debtors back on their feet and making the world go around is the function of the bankruptcy court. Now if you’ve got a dishonest debtor that’s a whole other issue. There’s a very elegant solution that a trustee in Alberta put together for me. I was trying to get a discharge on an old bankruptcy and the client was in Alberta and clearly couldn’t afford the trip to Toronto.
And the trustee out there said well, why don’t we make an in bankruptcy proposal, that is a bankruptcy while you’re in bankruptcy or sorry proposal, in bankruptcy? And why don’t we offer a hundred cents on the dollar? And when that goes through then the bankruptcy’s annulled. Now normally 100 cents on the dollar’s fairly serious but the trustee said well, look these are old debt you aren’t ever going to get a vote on any of these. And sure enough the 100 cent proposal went through, nobody ever heard from anybody. And the – he’s now discharged. It saved him a lot of money overcoming to Toronto and fighting out a discharge.
Doug Hoyes: Yeah so there’s lots of ways to get to where you need to get. Excellent, well I appreciate that. Richard, thanks very much for being here today.
Richard Howell: My pleasure.
Doug Hoyes: Thank you. That was my conversation with Richard Howell, an insolvency lawyer with Clark Farb and Fiksel in Toronto. So, here’s my take on this. My firm, Hoyes Michalos, helps people file many dozens of consumer proposals every week and we’ve been doing it for 20 years. Based on that experience I have one simple piece of advice, don’t let your proposal be annulled because if you’re always up to date with your payments you never have to worry about going to court to revive your proposal. Now of course I’m ignoring the obvious, stuff happens. You get laid off or you get sick or you have an unexpected car repair expense and cash flow is tight so you get behind on your proposal payments.
Here’s how we help you avoid those problems when you file a proposal with Hoyes Michalos. First we do our best to make sure that the proposal is affordable. In most cases the proposal payment is a lot less than what you were paying on all of the minimum payments on your debts. So that’s easy. I’ve had lots of clients over the years who owed $50,000 on credit cards and payday loans and other high interest debt and their minimum payments were over $2,000 per month. We file a proposal where the payments are in the range of $300 to $500 per month so the proposal immediately improves their cash flow.
Second, we work with you to time the filing of the proposal for when it works for you. You may decide to wait two weeks to get caught up on your rent or Hydro bill so that you’re starting the proposal with a clean slate. If you were laid off from work you may decide to wait to file until you go back to work and get your first paycheque. We let you pick the start date of the proposal that works for you.
Third, and most importantly, even though proposals are set up with monthly payments we strongly recommend that you set your payments up to match your pay frequency. So, if you get paid bi-weekly we’ll set the proposal payments up bi-weekly to come out of your bank account automatically on payday. That way you never bounce a cheque because the payments happen on the exact day that you get paid. But it gets better. If instead of paying say $400 per month on your proposal you pay $200 every two weeks you’ll always be ahead on your payments because twice a year you have a three pay month so you’ll be making an extra $200 payment that month. If you get paid weekly we set it up for weekly payments. So four times a year when you get an extra week’s pay you’re getting ahead on your payments. If you never miss a payment, after a year you’ll be one month ahead, that’s a great feeling.
We also encourage you to make extra payments whenever you have extra cash. Did you just get your tax refund? That’s one reason why a proposal is better than bankruptcy. In a bankruptcy you lose your tax refund but in a proposal you get to keep it. If you’ve got $1,000 refund you could decide to put $500 in your emergency fund and make an advanced payment of $500 on your proposal so now you’re $500 ahead. Did you get a raise at work? Great, you can bump up your regular payments any time. I have lots of clients who say things are going great, can you bump up my payment for $100 a week to $125 per week? Sure no problem and now you’re getting a further $25 a head every week.
Do you see where I’m going with this? By filing the proposal when it’s best for you and setting you up to make electronic payments on your payday we are increasing your chances of success. You get ahead on your payments so you’re never behind so there is no chance that your proposal gets annulled and there’s no need to ever worry about going to court to have your proposal revived. At Hoyes Michalos we want to set up you up for success. That’s peace of mind and that truly is a fresh start.
That’s our show for today. Show notes can be found at hoyes.com and in addition to a full transcript we’ve also got links to Richard Howell in case you need an insolvency lawyer and I’ve got links to consumer proposals and a relevant legislation we talked about on today’s show. Thanks for listening. Until next week, I’m Doug Hoyes. That was Debt Free in 30.