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What if My Consumer Proposal is Rejected?

What if My Consumer Proposal is Rejected

Key Takeaways

If your creditors initially reject your consumer proposal, it is not the end of the world. You still have an opportunity to reach an agreement with them. This may include increasing your payments, amending the terms of your consumer proposal, or providing additional information to creditors.

Faced with mounting debts, many Canadians turn to a consumer proposal to negotiate repayable terms with their creditors to avoid the harsher consequences of bankruptcy. This financial lifeline, which is regulated by the Office of Superintendent of Bankruptcy, depends on the creditor's acceptance. What if creditors don't accept your consumer proposal? This article will discuss why this may happen and what you can do.

Understanding Consumer Proposals

In Canada, a consumer proposal is a formal process designed for individuals who cannot repay their unsecured debts. Here's what you need to know:

  • Legally Binding: It's a legally binding agreement between you and your creditors, which means once accepted, it is legally binding.

  • Debt Limit: This option is available for those with unsecured debts up to $250,000, not including mortgages on a principal residence.

  • Role of a Trustee: A Licensed Insolvency Trustee oversees the consumer proposal. They act as an intermediary between you and your creditors to work out repayable terms over a specific period, up to a maximum of five years.

  • Stops Collection Calls: Once filed, wage garnishments and legal actions against you by creditors immediately stop.

  • Credit Impact: A consumer proposal will impact your credit score, but it can be a step towards rebuilding your credit in the long term.

Should your consumer proposal be rejected, it's essential to understand the implications and your next steps. Engaging with a Licensed Insolvency Trustee can guide how to proceed, whether renegotiating the terms or considering alternative debt relief options. Remember, the goal is to reach an agreement that satisfies you and your creditors and leads to financial recovery.

Reasons Creditors Might Reject a Consumer Proposal

When a consumer proposal is rejected, it can be a setback, but understanding the reasons why it was rejected can help guide your next steps. Here are some reasons why creditors might not accept your proposal:

  1. Financial Recovery Prospects: Creditors may believe they can recover more money through other means, such as seizing assets or pursuing legal action, rather than agreeing to the terms of the consumer proposal. For example, if you sell your house, you may have more than enough money to pay all your creditors fully.

  2. Questionable Financial Conduct: Evidence of irresponsible financial behaviour, like excessive spending or gambling, can lead to a proposal being turned down. Also, borrowing money immediately before filing a consumer proposal can cause creditors to reject the proposal. Creditors expect transparency and responsible financial conduct from the debtor.

  3. Significant Creditor Influence: If a single creditor holds more than 50% of the total debt, their decision carries significant weight in the approval process. Therefore, they may be more aggressive and seek a higher proposal amount to give their approval.

  4. Offered Amount is Too Low: Creditors might reject the proposal if they feel the repayment offer is too low, especially if they believe the debtor can pay more. If they see extra room in your budget for higher payments, they may want you to increase the monthly consumer proposal payment.

  5. Require More Information: Creditors may want the debtor to provide more information, such as bank statements and answers to questions about prior transactions, before they are willing to vote in favour of a consumer proposal. For example, the Canada Revenue Agency may want all your taxes filed up to date before they will vote in favour of a consumer proposal.

By working closely with a Licensed Insolvency Trustee and understanding these potential stumbling blocks, you can better prepare your consumer proposal or consider other options if rejected.

The Voting Process for a Consumer Proposal

It can be helpful to understand the voting process so you know what to expect:

  • Voting Period: Creditors have a 45-day window to cast their votes after the consumer proposal is filed. Acceptance depends on the majority of creditors (by dollar value) saying 'yes' to the consumer proposal. If this majority is achieved, the consumer proposal is accepted and becomes legally binding.

  • Voting Power: Each creditor's vote is proportional to the debt owed to them. To vote, they must submit a valid Proof of Claim. This ensures that only verified debts can vote.

  • Automatic Acceptance: If less than 25% of the creditors (in dollar value) call for a meeting within the voting period, the proposal is automatically accepted when the 45-day mark is reached.

If a rejection occurs:

  • Creditors' Meeting: Should over 25% of the dollar value of proven claims request it, the Licensed Insolvency Trustee must schedule a meeting within 21 days. If less than 50% of the creditors have voted in favour, the Trustee will initiate negotiations between the debtor and their creditors.

  • Exploring Options: The debtor must decide if they are willing to increase their offer to creditors or withdraw their consumer proposal and find an alternative way to deal with their debts.

  • High Acceptance Rate: Most consumer proposals are accepted, reflecting creditors' preference for this path over bankruptcy. Debtors can navigate the voting process and explore their options if a consumer proposal is rejected by speaking with a Licensed Insolvency Trustee.

Negotiating After Rejection of Consumer Proposal

When faced with a consumer proposal rejection, it's important to regroup and consider the next steps carefully. Here are some strategies to help you move forward:

  • Re-evaluate Your Offer: Understand the reasons behind the rejection, such as offering too low a payment or having a high amount of debt. Creditors typically expect a proposal that provides them with more than what they would receive in a bankruptcy scenario and will provide a counteroffer for them to accept your proposal. You can accept their counteroffer or provide your own counteroffer back to the creditors.

  • Negotiate New Terms: Work with your Trustee to negotiate new terms that are feasible for you and more appealing to your creditors. Discuss and adjust the monthly payment amount, the total amount to be repaid, and the repayment term duration. Your trustee can guide you through this process and ensure the new terms are reasonable and within your budget. If your income is expected to be lower for the next 12 months and then goes up higher, such as due to maternity leave, the Trustee can modify the payment schedule so it will be affordable.

  • Explore Other Debt Solutions: If renegotiation isn't unsuccessful, remember other options, such as credit counselling or bankruptcy, are available. Each has its own implications for your credit report and financial future, so choose wisely. Remember, a rejected consumer proposal will remain on your credit report for three years from the date of failure or six years from the date it was filed, impacting your credit score. Therefore, working closely with a Licensed Insolvency Trustee is crucial to navigate your options and find a solution that sets you on a path to financial stability.

Alternative Options if Consumer Proposal is Not Accepted

When a consumer proposal is rejected, it's a significant bump in the road, but it's not the end of the journey to financial recovery. Below are options you can consider:


  • Withdraw and Explore: You might withdraw the proposal and explore other debt-relief options. This could mean tightening your budget, seeking debt counselling, or considering debt consolidation loans.

  • Wait and Refile: If you believe a consumer proposal is still the best route, you can withdraw and wait to refile in the future. You may want to wait at least six months to demonstrate a change in circumstances, which could make the consumer proposal more appealing to creditors the second time around.

  • Bankruptcy Consideration: While it's a last resort, bankruptcy is an alternative that can provide relief from unsecured debts. It's important to understand that this will further hurt credit rating, but sometimes, it's the necessary step towards a fresh financial start.

Below is a summary of the alternatives:


  • Eliminates most unsecured debts.

  • Typically offers creditors 10-15 cents on the dollar.

  • Administered by an LIT, can lead to discharge in 9 to 36 months. Debt Settlement or Consolidation:

  • Negotiate to pay a lump sum less than the total amount owed.

  • Consolidate debts into a single loan with potentially lower interest rates. Credit Counseling:

  • Work with a counsellor to create a debt management plan.

  • This may include negotiating with creditors for reduced payments or interest rates.


The consumer proposal process is usually straightforward, and your initial offer to your creditors will be accepted. However, when your creditors vote against your proposal, it could be rejected. Therefore, working with a Licensed Insolvency Trustee, they can speak with the creditors and see what they will require to vote in favour.

Are you considering filing a consumer proposal? If so, contact us today for your Free Consultation!



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