Why a consumer proposal would be rejected

If you’ve recently filed a consumer proposal, you might be waiting to find out whether it’s been accepted by your creditors. This can be a stressful time because there may be some uncertainty about what will happen if you have your consumer proposal rejected by your creditors. Find out what happens when your consumer proposal is rejected, and what other debt solutions you can consider if you can’t get it approved.

What is a consumer proposal?

A consumer proposal is an agreement you enter into with a designated legal “trustee” (also called a Licensed Insolvency Trustee) that is designed to give you some relief from your debt and your creditors. It does this by forgiving a portion of the money you owe and setting a payment schedule that fits your budget.

Once your consumer proposal is accepted, you’ll only have to pay one easy monthly payment. Your credit score will go down to one of the lowest scores possible. This will affect your ability to apply for loans and other forms of financing until you build it back up again. A note that you had a consumer proposal will also stay on your credit report for up to 3 years after you pay it off, which will keep your credit score low for that amount of time.

How do consumer proposals get approved?

Your Licensed Insolvency Trustee will work with you to negotiate an agreement to submit to your creditors. Once the agreement is submitted, your creditors will have 45 days to accept or reject your offer. The majority of your creditors (75% or over) will need to accept the agreement for it to proceed.

If 75% of your creditors vote for your consumer proposal to pass, the creditors that voted “no” will have to abide by the agreement as it has been laid out. If more than 25% of your creditors vote to reject your offer, they’ll need to have a special meeting to negotiate different terms for your consumer proposal.

Why would a consumer proposal be rejected?

If your consumer proposal is rejected, don’t worry. This might just mean you need to tweak it a little bit before it’s deemed acceptable by your creditors. The main reasons your creditors might reject your consumer proposal are because you’re not offering enough money or because you’ve offered an unsuitable term for your repayment schedule. In this case, your creditors will usually request changes to the terms that you’re offering. They may also meet as a group to figure out how they can find a collective solution and negotiate a plan of action to help you resolve your debt.

Negotiating a failed consumer proposal

Example: Todd and Sally have been married for three years and together have accumulated a debt of $54,000. Sally works a part-time job while Todd was recently laid off from his job as a construction worker. Since they can’t meet their debts, they file for a consumer proposal offering their creditors $23,000.

Their creditors reject the offer but advise that they would be willing to accept $38,000. The couple demonstrates that they can’t afford this offer by submitting a budget and supporting documentation about Todd’s layoff. They counteroffer $32,000 and their creditors have a meeting to discuss these terms. At the meeting, the majority of their creditors accept the amended amount and approve the consumer proposal.

What eligibility criteria do I need to meet to file a consumer proposal?

To file a consumer proposal, you’ll need to meet the following eligibility criteria in most cases:

Eligibility criteria

• Owe between $1,000 and $250,000 (excluding your mortgage).
• Have a source of income to make your monthly payments.
• Be unable to repay all your creditors in full with interest and have trouble getting a debt consolidation loan because your debts are too high.

What information will I need to submit?

Before your trustee can decide if a consumer proposal is the best fit for your needs, you may need to supply the following documents:

• Debt-to-income ratio. Compile a list of all the debts you owe alongside your current income. Find out your debt-to-income ratio here.
• List of assets. Add up the value of all the assets you own to demonstrate your total net worth.
• Outline of monthly expenses. Provide a budget to outline the monthly expenses you have to pay in addition to your outstanding debts.
• Marital status. You’ll need to say whether you’re married since you may have to file a consumer proposal jointly with your partner.

What are some of my other debt solutions if I can’t get approved?

If you can’t get approved for your consumer proposal, there are a number of other options you can pursue:

• Debt settlement. You may be able to settle your debt with your creditors without a consumer proposal, which could protect your credit score in the long run.
• Debt consolidation loan. You can take out a debt consolidation loan to combine several debts into one easy payment.
• Credit counselling. You’ll be matched with a credit counsellor to investigate the best approach to tackling your debt.
• Borrowing from loved ones. It might make sense to ask for a no-interest loan from family or friends to keep your credit score intact.
• Sell off your assets. You may be able to sell or downsize your house or vehicle to pay down your debt.
• Bankruptcy. If you can’t qualify for a consumer proposal, you may need to file for bankruptcy, which will force you to forfeit all of your assets.
• Debt relief. A debt relief company can help you understand what debt relief options are available to you, help you to create a plan to get out of debt and connect you with your lenders to settle your debts as quickly and smoothly as possible.

Finder survey: What debts are Canadians from different regions typically paying off?

Bottom line

Your creditors will have 45 days to approve or reject your consumer proposal once it’s filed. If your proposal is rejected, you may be able to submit another offer with amended conditions. If you can’t negotiate new terms, you may need to consider other debt solutions like working with a debt relief provider that may be available to you under these circumstances.

Frequently asked consumer proposal questions

• How long will I have to wait for a decision on my consumer proposal?

  You’ll typically need to wait up to 45 days to find out if your consumer proposal has been accepted or rejected. Once a decision is made, you’ll be informed about the outcome by your Licensed Insolvency Trustee.

• Do all of my creditors need to approve my consumer proposal for it to pass?

  No. You’ll need 75% or more of your creditors to approve your consumer proposal for it to go through. If the majority of your creditors don’t pass your consumer proposal, you’ll likely need to amend the terms of the agreement and submit it again.

• Why would I have my consumer proposal rejected?

  The main reasons your creditors might reject your consumer proposal are because you’re not offering enough money or because you’ve offered an unsuitable term for your repayment schedule.

• How long will it take me to recover from a consumer proposal?

  It can take many years to recover from a consumer proposal, depending on how long it takes you to pay it off. You’ll usually have to wait three years after you complete your payments to get your credit score back to normal.

• What happens if I don't make my payments?

  If you don’t make your payments, your consumer proposal may be cancelled. If this happens, you’ll lose all the money you put down on it already and your creditors can resume collecting fees and interest on your debts.