Consumer proposals are a popular form of debt relief for many Canadians, and a great alternative to bankruptcy. Consumer proposals can reduce your debt by up to 80% and put a stop to collection agencies. Although most Canadians are successful in filing a consumer proposal, many wonder ‘can a consumer proposal be rejected?’. The answer is yes, a consumer proposal can be rejected by creditors. Yet by understanding the factors that lead to rejection and working with a reputable Licensed Insolvency Trustee, you can strengthen your consumer proposal and increase your chances of approval. In this article, we’ll explore why consumer proposals can be rejected, common reasons for rejection, and tips on how to improve your chances of a successful outcome.
What is a consumer proposal?
A consumer proposal is a legal form of debt relief that is an agreement between a debtor and their creditors. A popular alternative to bankruptcy, it is an affordable way to clear the majority of your debts while allowing you to keep your assets. It’s available to individuals with unsecured debts of up to $250,000 excluding a mortgage on a primary residence. A consumer proposal must be filed by a Licensed Insolvency Trustee, the only professional legally able to administer all forms of debt relief in Canada. In a consumer proposal, the individual agrees to pay a percentage of their total debts over a period of up to five years. Once accepted, a consumer proposal provides protection from collection efforts and stops creditors from charging additional interest. Learn more about the advantages of filing a consumer proposal.
Can a consumer proposal be rejected?
Yes, creditors have the right to reject or negotiate the terms of a consumer proposal. For the proposal to be accepted, creditors holding at least 51% of the value of the debt must agree to its terms. If the majority of creditors don’t accept the proposal, they may either reject it outright or request changes:
Rejection by majority vote
Creditors who hold a majority of the debt value must agree to the proposal for it to pass. If they vote against it, the consumer proposal will be rejected.
Amendments or counteroffers
Creditors may reject the initial terms but make a counteroffer, suggesting alternative terms. You can then decide whether to accept these new terms or go back to the negotiating table.
Why are consumer proposals rejected?
Understanding the reasons behind consumer proposal rejections can help you to avoid common pitfalls. Here are a few reasons creditors might reject a proposal:
Inadequate payment offer
Creditors may reject a consumer proposal if they feel that the offer is too low or that they are not receiving enough to justify accepting it. Proposing a fair payment amount based on your financial situation is crucial, and a good Licensed Insolvency Trustee should help you to do this.
Inconsistent financial history
Creditors may scrutinize your financial history, including your past debt payments and credit usage. A history of missed payments or high-risk financial behaviour could impact their willingness to accept the proposal.
Unrealistic budget
A key part of a consumer proposal is demonstrating a realistic repayment plan. If creditors feel that your budget doesn’t allow for the proposed payments, they might reject the offer. A Licensed Insolvency Trustee can help you create a budget that creditors view as feasible.
High debt-to-income ratio
If your debt-to-income ratio is exceptionally high, creditors may see the proposal as unsustainable. To improve your chances, consider working with your LIT to assess how much you can realistically commit to repaying.
Insufficient disclosure of financial situation
Transparency is crucial when submitting a consumer proposal. Failing to disclose assets, sources of income, or other debts can lead to distrust among creditors, resulting in rejection. Be honest about your financial circumstances to improve your proposal’s chances.
What happens if your proposal is rejected?
If your proposal is rejected, don’t panic. You have a few options:
- Negotiate with creditors. If creditors reject your proposal, your LIT can attempt to negotiate new terms that are acceptable to both parties.
- Adjust the proposal terms. You may be able to revise the proposal based on creditor feedback. For example, you might increase the monthly payments or adjust the repayment period to align with creditors’ expectations.
- Consider bankruptcy as a last resort. While a consumer proposal is preferable for many due to its lower impact on credit, bankruptcy is an option if creditors continue to reject your proposal. A LIT can help you weigh this decision.
How to improve your chances of consumer proposal approval
If you’re worried about your proposal being rejected, here are some ways to make it more appealing to creditors:
Work closely with a Licensed Insolvency Trustee
A Licensed Insolvency Trustee can assess your financial situation and help you draft a proposal that creditors are more likely to accept. A LIT’s expertise can guide you through each step and increase your chances of a successful outcome.
Offer a realistic payment amount
Creditors are more likely to accept a consumer proposal that offers a fair payment based on your budget and income. Working with a LIT can help you determine a reasonable amount that satisfies creditors and fits within your means.
Provide full financial transparency
Being transparent about your finances builds trust. Disclose all sources of income, debts, and assets so that creditors can see the full picture. Credibility can play a large role in their decision to accept your proposal.
Explain unusual circumstances
If you’ve experienced unique circumstances – such as a job loss, medical expenses, or other life events that impacted your finances – explaining these situations in your proposal can help creditors understand your position better.
Why choose Spergel for your consumer proposal?
At Spergel, we know that navigating a consumer proposal can be challenging. Our team of Licensed Insolvency Trustees has helped over 100,000 Canadians regain control of their finances. For over 35 years, we have provided a customized approach, assisting clients in creating strong consumer proposals that creditors are more likely to accept. With a focus on transparency and understanding, we’re here to support you every step of the way.
Can a consumer proposal be rejected? FAQs
Here is one of the most commonly asked questions we receive about consumer proposal rejections:
What percentage of consumer proposals are accepted?
The vast majority of consumer proposals in Canada are accepted, with approximately 99% of Spergel’s consumer proposals being approved by creditors. This high acceptance rate is largely due to the involvement of experienced Licensed Insolvency Trustees, who help debtors create proposals that align with creditors’ expectations and financial realities. By carefully assessing an individual’s financial situation, a LIT increases the likelihood of the proposal meeting creditor requirements, which significantly contributes to this high success rate.
If you’re considering a consumer proposal, book a FREE consultation with Spergel today. Our experienced LITs can help you assess your options and create a consumer proposal that works for you. Don’t let debt control your life – let us guide you toward financial freedom.
