Why would a consumer proposal be rejected?

Consumer proposals are a debt relief solution that can help you find your way out of overwhelming outstanding debt. However, it’s not guaranteed that your consumer proposal will be accepted.

Whether you’re facing credit card debts, income tax debts or other lines of credit, we can help. In this blog, we’ll explore why a consumer proposal might be rejected and how you can navigate this legal process successfully.

Key Points

1. Can a consumer proposal be rejected?
2. How common is it for consumer proposals to be rejected?
3. Why would a creditor reject a consumer proposal?
4. How do creditors accept or reject a consumer proposal?
5. How do you set your consumer proposal up for success?
6. If your consumer proposal is rejected, what other option do you have?

Can a consumer proposal be rejected?

Yes, a consumer proposal can face rejection. This legal process involves making a binding agreement between you and your unsecured creditors to pay back a portion of your debts over a period of time. Despite its benefits as an alternative to bankruptcy, not all proposals sail through without hurdles.

How common is it for consumer proposals to be rejected?

Rejection isn’t the norm, but it’s a possibility. Over 97% of consumer proposals are accepted (V Mikhed & B Scholnick), especially when they are well-prepared and reasonable. Licensed insolvency trustees play a big role in ensuring your proposal is structured effectively to meet creditor expectations.

Why would a creditor reject a consumer proposal?

Insufficient repayments

Creditors are looking to recover as much of the owed amount as possible. Proposals suggesting monthly payments that they deem too low compared to your financial situation might not cut it.

Debtor conduct

Your financial behaviour leading up to the proposal can also impact its acceptance. Rash spending, unnecessary expenses, or preferential payments to certain creditors can raise red flags.

How do creditors accept or reject a consumer proposal?

The acceptance process is quite straightforward. Creditors have a set period of time—usually 45 days—to respond to your proposal. They can accept, reject, or not respond, which is considered an acceptance. A meeting of creditors is called if there’s significant opposition, requiring more than 25% of creditors by debt amount to push for it. At the meeting, your LIT will continue to negotiate on your behalf.

How do you set your consumer proposal up for success?

There are a number of ways you can prepare for a successful consumer proposal:

Communicate with your licensed insolvency trustee

Your trustee is your ally. Keeping open lines of communication ensures you’re both on the same page regarding your proposal terms and payment plans.

Prepare for any outcome

Understanding all possible outcomes, including rejection, prepares you mentally and financially to adjust your strategy if needed.

Be willing to offer your creditors more money

If initial proposal payments don’t meet creditor expectations, being open to negotiation and possibly increasing your offer can make a difference.

Manage your new debt well

When your consumer proposal is accepted, the process isn’t over. This is a legally binding agreement, so you must stick to your payment terms.

If your consumer proposal is rejected, what other option do you have?

Rejection isn’t the end. You can consider debt consolidation, credit counselling, or even a debt management plan as alternatives. In some cases, re-filing the proposal or, as a last resort, filing for bankruptcy might be necessary. Financial counselling sessions can also offer insights into managing your debt load more effectively.

Regain financial control with Harris & Partners

We know that the weight of debt can feel unbearable at times, but you don’t have to face it alone. If you’re grappling with financial burdens and considering a consumer proposal or exploring other debt relief options, our dedicated team of Licensed Insolvency Trustees is here to guide you through every step of the process.

We understand the intricacies of managing credit card debt, lines of credit, secured debts, and more, ensuring you receive comprehensive support tailored to your unique financial situation.

We believe in providing compassionate, professional advice to help you regain control of your finances. Whether you’re contemplating debt consolidation, debt management plans, or seeking a bankruptcy alternative, reach out today.