If creditors reject my consumer proposal, am I automatically bankrupt?

No. Unlike a Division I proposal, a rejected consumer proposal (Division II) does not make you automatically bankrupt. You can work with your Licensed Insolvency Trustee to amend and re-file the proposal, or consider other options including defending or settling individual lawsuits.

What does it mean if my proposal is "annulled"?

A consumer proposal can be annulled — for example, if you fall about three payments behind — which ends the proposal. When it is annulled, the protection that stopped collection ends and creditors can again pursue the full balance owing, less anything already paid.

Can a creditor sue me after my proposal ends?

Yes. Once the stay of proceedings ends, an unsecured creditor can start or continue a lawsuit. If you are served with a Statement of Claim, the usual Ontario deadlines and defences apply — so do not ignore it.

Do I lose credit for the payments I already made?

Payments distributed to creditors generally reduce what is owed, but you should confirm the exact figures with your trustee and any creditor. A creditor that resumes collection should account for amounts already received through the proposal.

Consumer Proposal Rejected or Annulled in Ontario: What Happens Now?

Reviewed by Angelos Spingos, Principal Lawyer, Spingos Law · Licensed by the Law Society of Ontario · Last reviewed June 29, 2026

A consumer proposal can end in two very different ways — creditors can reject it at the outset, or it can be annulled later if payments stop. Either way, the legal protection it gave you ends, and that changes what you need to do next.

“Rejected” vs. “annulled” — they are not the same

A consumer proposal is a formal arrangement filed through a Licensed Insolvency Trustee (LIT) under the federal Bankruptcy and Insolvency Act. It can fail at two points:

Rejected by creditors — if creditors vote it down at the outset. Importantly, unlike a Division I proposal, a rejected consumer proposal does not make you automatically bankrupt.
Annulled after the fact — if you fall behind (typically about three payments) or default on the terms, the proposal can be annulled and effectively cancelled.

The key legal consequence: while a proposal is in force, a stay of proceedings stops most lawsuits and garnishments. When the proposal is rejected or annulled, that stay ends — and creditors can resume collecting the full balance owing, less what you already paid.

What this means for a homeowner

Once the stay is gone, an unsecured creditor can sue, obtain a Statement of Claim, and — if you do not respond — get a default judgment it can enforce. For a homeowner, that can eventually mean a writ registered against your property. The good news: none of that is automatic, and a lawsuit can often be defended or settled.

Your realistic options now

Re-file or amend the proposal with your LIT, if a workable version is possible.
Defend a lawsuit if a creditor sues — you may still have defences such as an expired limitation period or a creditor that cannot prove it owns the debt.
Negotiate a settlement on a specific claim, often for less than the full amount.
Weigh a proposal against defending — see consumer proposal vs. defending the lawsuit.

Which path fits depends on your facts: who is owed, how much, how old the debt is, and what you own. A short legal review can tell you where you actually stand before a creditor moves.

Frequently asked questions

If creditors reject my consumer proposal, am I automatically bankrupt?: No. Unlike a Division I proposal, a rejected consumer proposal (Division II) does not make you automatically bankrupt. You can work with your Licensed Insolvency Trustee to amend and re-file the proposal, or consider other options including defending or settling individual lawsuits.
What does it mean if my proposal is "annulled"?: A consumer proposal can be annulled — for example, if you fall about three payments behind — which ends the proposal. When it is annulled, the protection that stopped collection ends and creditors can again pursue the full balance owing, less anything already paid.
Can a creditor sue me after my proposal ends?: Yes. Once the stay of proceedings ends, an unsecured creditor can start or continue a lawsuit. If you are served with a Statement of Claim, the usual Ontario deadlines and defences apply — so do not ignore it.
Do I lose credit for the payments I already made?: Payments distributed to creditors generally reduce what is owed, but you should confirm the exact figures with your trustee and any creditor. A creditor that resumes collection should account for amounts already received through the proposal.

Sources

Bankruptcy and Insolvency Act (consumer proposals; annulment) · Office of the Superintendent of Bankruptcy — Consumer proposals · Ontario Limitations Act, 2002. General information for Ontario, not legal advice.