What Happens if a Consumer Proposal Is Refused?

A consumer proposal is a legal debt solution governed by the Bankruptcy and Insolvency Act. It is often chosen by individuals in debt who wish to avoid bankruptcy, as it allows you to negotiate a reduction of your debts with creditors and create a realistic repayment plan based on your financial situation.

While filing a consumer proposal can be an effective way to get out of debt, there’s always a possibility it may be refused by creditors. Learn what you need to know and the steps you can take if you find yourself in this situation.

Why a Consumer Proposal May Be Refused

For many creditors, a consumer proposal is preferable to personal bankruptcy because it usually allows them to recover more money than they would through bankruptcy. However, there are situations where creditors may refuse the offer. Common reasons include:

Insufficient Offer

If creditors believe that the proposed payments do not reflect the debtor’s actual repayment capacity, they may refuse the offer.

Expectation of a Better Offer

Some creditors refuse a proposal as a negotiation tactic, hoping to see the offer improved and the monthly payments increased.

Inequity Among Creditors

If a creditor feels that the proposal unfairly benefits certain creditors over others, they may oppose it to demand fair treatment.

Poor Credit History

If the debtor has already filed for bankruptcy, made another consumer proposal, or has a history of failing to repay debts, creditors may be less inclined to accept the proposal.

Lack of Transparency

Failing to disclose certain information, such as assets or income, can undermine the debtor’s credibility and lead to the proposal being refused.

What to Do in Case of Refusal?

It’s important to know that a proposal does not need to be accepted by all creditors to be approved. Only a majority (50% + 1) must agree for it to become legally binding on all creditors. A refusal occurs only if the majority of creditors agree to reject the consumer proposal. Once a proposal is filed, the creditors have 45 days to cast their vote.

If your proposal is refused, your licensed insolvency trustee can meet with the creditors and negotiate on your behalf to adjust the terms. You can then submit an amended proposal including a new payment plan in the hope of satisfying all parties.

Creditors may also present a counter-proposal. In such a case, it’s up to you to decide whether to accept or refuse the counter-offer.

Although most consumer proposals are accepted, the role of the licensed insolvency trustee is to guide you through each step of the process, whether the offer is accepted or refused. From the initial preparation to debt consolidation, you receive essential support to regain control over your financial situation.

No matter the cause of your debt: unexpected expenses, maxed-out credit cards, or other factors, a licensed insolvency trustee will help you see things more clearly. With their expertise, you can find the best way to repay your debts while minimizing the impact on your personal life and your credit score.
If your debt situation worries you or you need advice on the debt relief options available to you, don’t hesitate to contact the team at M. Roy & Associés. Book an appointment by phone or online today to get the help you need to successfully repay your debts.