Consumer Proposal Annulment: Missing 3 Payments

A consumer proposal is automatically annulled when you fall behind by three cumulative monthly payments. This is outlined in Section 66.31(1)(a) of Canada’s Bankruptcy and Insolvency Act. These missed payments don’t need to be consecutive—missing one, paying one, then missing two more triggers annulment the day the third payment comes due. After annulment, your full original debt minus any payments already made is reinstated. Creditors can immediately restart wage garnishment, taking up to 20-30% of your gross income. Your credit rating drops from R7 to R9. You have 30 days from the annulment date to revive the proposal through an administrative process costing $200-$400.

What Triggers Consumer Proposal Annulment

Your proposal is deemed annulled under BIA Section 66.31(1)(a) when you are in arrears by 3 cumulative monthly payments. The payments don’t need to be consecutive. Miss one payment, make the next, then miss two more—you’re annulled on the day the third missed payment was due.

The annulment is automatic. No court hearing is required. Your Licensed Insolvency Trustee must file an annulment report with the Office of the Superintendent of Bankruptcy, but the annulment itself happens by operation of law the moment you hit three missed payments. See the consumer proposal timeline for how this fits into the full process.

Other triggers can also annul your proposal. Failing to attend mandatory financial counseling sessions causes annulment. Not updating your income information when requested also triggers annulment. These non-payment triggers are less common but carry the same consequences.

In 2025, 108,000 Canadians filed consumer proposals, representing 79% of all consumer insolvencies. Even with the high consumer proposal acceptance rate (99% approval), LITs report 8-12% of proposals face annulment risk during their term. Most annulments occur between months 12 and 24 when life disruptions like job loss or medical emergencies interrupt payment capacity.

What Happens to Your Debt After Annulment

Your full original debt is reinstated immediately. You owe the original balance minus any payments you already made through the proposal. The portion creditors agreed to forgive—often 30-70% in accepted proposals—is voided.

Here’s the math. You owed $40,000 in original debt. You paid $8,000 over 16 months in your proposal. Your proposal is annulled. You now owe $32,000 immediately, plus accumulated interest from your original default dates.

Interest and penalties resume the day of annulment. Credit cards restart accruing interest at 19.99-29.99% APR. CRA adds back previously frozen interest and penalties on tax debts. On $32,000 in credit card debt at 21% average APR, you’re accumulating $562 per month in interest charges.

You cannot file a new consumer proposal on the same debts. The BIA prohibits this. Your options after annulment are limited to revival within 30 days, bankruptcy, or direct negotiation with creditors who are under no obligation to settle.

The payments you made during the proposal are not refunded. They were applied to your debt. But without the forgiveness element of a completed proposal, you’re back to owing nearly the full amount.

Creditor Rights Return Immediately

The stay of proceedings ends the day annulment occurs. This is the legal freeze that prevented creditors from taking collection action while your proposal was active. Once the stay lifts, creditors have full collection rights again.

Wage garnishment restarts within 14 days of annulment in most cases. Creditors with existing garnishment orders simply resume deductions. Creditors without orders can apply to court for garnishment authorization, a process that takes 2-4 weeks. General creditors can garnish up to 20% of your gross wages in most provinces. Some jurisdictions allow 30%.

CRA has special powers on tax debts. They can redirect CPP and OAS benefits without court approval. Typical CRA garnishment takes 30% of gross income. CRA can also freeze bank accounts and register liens against property.

Collection calls resume immediately. Creditors or third-party agencies restart contact. Canada has no federal limit on daily call frequency. Provincial regulations only prohibit calls between 8PM and 8AM local time, and calls to your workplace if you’ve requested they stop.

Asset seizure becomes possible. Creditors can file judgments and execute writs against bank accounts. Vehicles can be seized if not protected by provincial exemptions. In Ontario, vehicles worth up to $7,117 are exempt. In BC, the exemption is $5,000. Above these amounts, creditors can seize and sell assets to satisfy judgments.

Lawsuits move forward. Creditors can pursue you in Small Claims Court for debts under $35,000 in Ontario, $50,000 in BC. Larger debts go to Superior Court. Legal judgments remain enforceable for 10-20 years depending on the province.

Don’t wait for garnishment to start. Licensed Insolvency Trustees can file amendments or revivals within 48 hours to stop creditor collection. Get your free consultation now and protect your paycheck.

How Annulment Destroys Your Credit Rating

Your credit rating drops from R7 to R9 the day of annulment. R7 indicates an active consumer proposal or debt management program. R9 is the lowest possible rating, indicating bad debt placed for collection or bankruptcy.

The R9 rating stays on your credit report for 6 years from your original proposal filing date, not from the annulment date. If you filed your proposal on March 1, 2024, and it was annulled on June 1, 2025, the R9 stays until March 1, 2030.

This is the same duration and severity as bankruptcy. A first-time bankruptcy discharge results in an R9 rating for 6-7 years from discharge. A completed consumer proposal shows as R7, removed 3 years after completion. An annulled proposal gets no early removal benefit.

Your credit score drops to the 450-550 range with an R9 rating. This blocks most traditional lending. You cannot qualify for mortgages at major banks. Auto loans require subprime lenders at 18-25% interest rates. Credit card applications are declined.

The R9 rating affects more than borrowing. Landlords run credit checks and routinely reject R9-rated applicants. Employers in financial services, law enforcement, and positions requiring security clearance often check credit. A bankruptcy or annulled proposal on your record can disqualify you from these roles.

Three Ways to Avoid Annulment Before It Happens

1. Catch Up Missed Payments

You have a grace period before annulment. You can miss or defer 2 payments without triggering annulment. Some LITs allow you to add missed payments to the end of your schedule if you resume regular payments immediately.

There is no fee to catch up. You simply resume your normal payment schedule and work with your LIT to address the arrears. Most trustees add the missed amounts to the final months of your proposal, extending your completion date by 1-2 months.

You must act before the third payment is missed. Once the third payment due date passes without payment, annulment is automatic. Your LIT has no discretion to prevent it at that point.

2. Amend the Proposal

Your LIT can file an amendment before annulment happens. This requires creditor approval but there is no additional fee beyond your original proposal costs.

Common amendments include extending your payment term from 48 months to 60 months, reducing your monthly payment amount, or adding a lump sum payment later in the proposal term. The BIA allows proposals to run for a maximum of 5 years total under Section 66.12(5).

The amendment process takes 45 days for creditor voting. Your LIT sends the amendment to all creditors. They have 45 days to vote. The amendment is approved if a majority of creditors by dollar value vote yes. It also passes if creditors holding 25% or less vote no.

You can request an amendment anytime before annulment. The best time is when you first anticipate payment difficulty—after a job loss, medical emergency, or income reduction. Waiting until you’ve missed 2 payments puts you at risk of annulment during the amendment voting period.

3. Request a Court Hearing

This option is rare and has low success rates. You can apply to court to dispute whether annulment should stand or to demonstrate extraordinary hardship warranting special consideration.

Court filing fees range from $200-$500 depending on province. You need evidence of procedural error by your LIT, creditor misconduct, or circumstances beyond your control that warrant judicial relief.

Courts generally favor creditor contract enforcement. Unless you can show your LIT failed to follow proper procedures or that creditors acted in bad faith, courts uphold annulments. The “extraordinary hardship” standard is high—medical catastrophe, disability onset, or similar life-altering events.

Most trustees recommend amendment over court applications. Amendments cost nothing and have cooperative rather than adversarial dynamics with creditors. Court applications are expensive, time-consuming, and rarely successful.

Reviving an Annulled Proposal: The 30-Day Window

You have 30 days from the annulment date to revive your proposal administratively. The annulment date is the day the third payment came due, not the date you received your annulment letter from your LIT.

Count carefully. If your payment was due on the 15th of the month and you missed it, that’s your annulment date. You have until 30 days later to file for revival. Many people discover they’re annulled a week or two after the fact when they receive their LIT’s letter. That window is already partially consumed.

Your LIT files the revival application under BIA Sections 66.31(7) and (9). This is an administrative process within the 30-day window—no court application required. Your LIT sends notice to all creditors, but creditors cannot vote to block revival during this period.

You do not need to pay the missed amounts before revival according to OSB position papers. However, you must catch up on arrears before your proposal completes. Some trustees require upfront payment as a condition of filing revival. This varies by trustee.

The cost is typically $200-$400 in administrative fees. The BIA doesn’t mandate this fee, but most trustees charge for the additional filing and notification work. This is far less than the cost of having your full debt reinstated.

After 30 days, revival requires a court application. Court revival costs $800-$1,500 including legal fees and court filing charges. The court has discretion to deny your application. Success is uncertain and depends on your ability to demonstrate you can maintain payments going forward.

If your revival is approved, your proposal continues on its original terms. Your credit report reverts to R7 status. The stay of proceedings is reinstated, stopping any creditor collection activity that resumed during annulment.

When You Can’t Revive: Alternatives After Annulment

File Bankruptcy

Bankruptcy discharges most unsecured debts including credit cards, lines of credit, payday loans, and personal loans. Student loans are dischargeable if you’ve been out of school for more than 7 years. CRA tax debts under $250,000 are dischargeable.

First-time bankruptcy with no surplus income results in automatic discharge after 9 months. Surplus income extends discharge to 21 months. Surplus is calculated using Statistics Canada Low Income Cutoff standards—if your household income exceeds the threshold for your family size, you pay 50% of the excess to your trustee monthly.

Bankruptcy costs $1,800-$2,200 in trustee fees for a standard 9-month discharge. Surplus income payments are additional. For someone earning $4,500 monthly gross as a single person, surplus income is about $180 per month, adding $1,620 to total bankruptcy cost over 9 months.

Bankruptcy results in an R9 credit rating for 6-7 years from discharge. This is similar credit impact to annulled proposal duration. But bankruptcy gives you a legal discharge from debts. Annulment does not.

Negotiate Directly with Creditors

After your proposal fails, you can contact creditors individually to negotiate payment arrangements. Creditors are under no obligation to accept settlements after a proposal annulment. They know you’ve already tried a formal restructuring and failed.

Expect to pay 60-100% of the balance owing. Creditors who agreed to accept 30 cents on the dollar in your proposal now want full payment. You’ve lost your negotiating leverage.

Some creditors offer payment plans at full balance. This avoids garnishment but doesn’t reduce what you owe. Interest continues accruing at original contract rates.

This option only works if you have income to support payments and creditors are willing to work with you. If creditors refuse and proceed to garnishment, you’re back to losing 20-30% of your wages with no debt reduction.

Do Nothing

This is not recommended but some people choose it. Provincial statute of limitations bars collection lawsuits after 2-6 years depending on province. In Ontario, creditors have 2 years from the last acknowledgment of debt to sue. In BC, it’s 6 years.

Statute-barred debts remain on your credit report but cannot be enforced through court. Creditors can still call and send letters. They cannot garnish wages without a court judgment. Statute of limitations prevents obtaining new judgments.

CRA debts have no statute of limitations. Tax debts never expire. CRA can and will garnish wages indefinitely until paid. Waiting out CRA debt is not possible.

Wage garnishment from pre-existing judgments continues regardless of statute of limitations. If a creditor obtained a judgment before your consumer proposal, that judgment remains enforceable for 10-20 years depending on province. Garnishment can persist throughout that period.

The math is brutal. A $600 monthly garnishment over 6 years equals $43,200 in lost wages. That’s on top of still owing the debt principal. Bankruptcy discharge after 9 months costs $3,420 total and eliminates the debt entirely.

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Real Scenarios: What Annulment Looks Like

Jasmine T., Kelowna BC

Jasmine owed $28,400 split between a Capital One card ($16,200 at 23.99% APR) and an MBNA card ($12,200 at 21.99% APR). She filed a consumer proposal in January 2024 agreeing to pay $395 monthly over 48 months.

By May 2025, she’d made 16 payments totaling $6,320. Then her car needed $1,800 in repairs. She couldn’t afford both the car and her proposal payment. She missed June and July.

Her LIT called in August. Jasmine was 2 payments behind—one more would trigger annulment. Her LIT filed an amendment extending her proposal from 48 to 54 months and reducing her payment to $350 monthly.

Creditors voted. The amendment was approved in 38 days. Jasmine avoided annulment. She completed her proposal in December 2025, 6 months later than originally planned. Her credit report cleared the R7 rating 3 years after completion.

The alternative: $22,480 remaining debt reinstated plus resumed interest charges of $395 monthly. Over 6 years, she would have paid $28,440 in interest alone, more than her original principal.

Kevin, Winnipeg MB

Kevin owed $41,200—a TD line of credit ($18,000 at 7.45%), CRA tax debt ($12,000), and three credit cards ($11,200 combined). He filed a consumer proposal in March 2024 paying $485 monthly for 60 months.

In January 2026, his warehouse employer laid off 40% of staff. Kevin was out of work. He missed his January, February, and March payments. Annulment triggered automatically on March 15, 2026.

Kevin found new work on April 2. He called his LIT on April 8. The annulment happened 24 days earlier—he had 6 days left in the 30-day revival window.

His LIT filed administrative revival on April 10. Kevin paid a $350 fee. His proposal reactivated. He resumed $485 monthly payments. No garnishment ever started because revival happened so quickly.

The alternative: $38,200 remaining debt (after $3,000 in payments) reinstated. CRA would have garnished 30% of his new $3,800 monthly wages—$1,140 per month. Over 3 years before potentially going bankrupt, he would have lost $41,040 to garnishment alone.

Sonia, Ottawa ON

Sonia owed $33,500—$9,000 in payday loans averaging 35% APR and $24,500 across three credit cards. As a single parent with inconsistent hours in retail, she filed a consumer proposal in June 2024 paying $620 monthly over 54 months.

Her hours dropped in winter 2025. She missed November, December, and January payments. Annulment happened on January 15, 2026. She didn’t understand the annulment letter from her LIT. She thought she could catch up whenever her hours increased.

She called her LIT on March 12, 2026—57 days after annulment. She’d missed the 30-day administrative revival window. Court revival would cost $1,200 with no guarantee of approval.

Her LIT recommended bankruptcy. Sonia filed on March 28, 2026. Her income qualified her for surplus income payments of $180 monthly. She was discharged 9 months later after paying $1,620 in surplus income plus $1,800 in trustee fees.

Total bankruptcy cost: $3,420. Her credit showed R9 rating for 6 years from discharge (December 2026). Her original proposal filing was June 2024, so that R9 would have stayed until June 2030 anyway—only 9 months difference in credit impact.

The alternative: $30,200 remaining debt after $3,300 in proposal payments. Her creditors would have obtained garnishment orders within 4 weeks. At $2,400 monthly gross income, 20% garnishment equals $480 monthly. Over the 4.5 years until her credit cleared anyway, she would have lost $25,920 to garnishment while still owing the debt.

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You’re not behind because you’re irresponsible. You’re behind because life happened—job loss, medical bills, car repairs, family emergencies. The proposal system doesn’t account for the randomness of life. But the BIA does give you tools to recover.

If you’ve missed 1-2 payments, call your LIT today. Amendment costs nothing and takes 45 days. That’s faster than waiting for annulment and trying to revive. If you’re already annulled, count the days from your third missed payment due date. If you’re within 30 days, revival is still possible for $200-$400.

After 30 days, your options narrow to bankruptcy or negotiation. Both are viable. Bankruptcy isn’t failure—it’s a legal tool specifically designed for situations where debt became unmanageable. Over 48,000 Canadians filed bankruptcy in 2025. You’re not alone in this.

The worst option is doing nothing. Garnishment compounds over years. A $600 monthly garnishment equals $43,200 over 6 years. That’s enough to buy a car, make a down payment on a home, or restart your financial life after bankruptcy discharge.

Book a free consultation with a Licensed Insolvency Trustee now. They’ll review your specific situation, calculate exactly what you owe after annulment, and show you the math on revival versus bankruptcy versus negotiation. You’ll get clear answers in 30 minutes. Find a local LIT here.

The 30-day revival window closes whether you act or not. Court revival after that costs 3-4x more with uncertain approval. Every day you wait, garnishment gets closer. Make the call today.