Can A Consumer Proposal Be Rejected?

Can a consumer proposal be rejected?

Yes, a consumer proposal can be rejected. A consumer proposal requires that at least 50% of your creditors vote in favour of your proposal. In the event they do not, it will not be accepted. Thankfully, when working with 4 Pillars Halifax the chance of a proposal being rejected is almost zero based on past clients.

Yes – you heard us right. We have an almost 100% success rate in assisting our clients to navigate the consumer proposal process and help ensure their consumer proposal is correctly structured and not rejected. Are there exceptions to the rules? Of course – some proposals are certainly riskier than others but even then the chance is still very low.

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In nearly every consultation we have clients who frequently have the same questions. The most frequent question is ‘can a proposal be rejected?’ We certainly understand this fear. When someone is going to file a proposal they are at a point in their lives where stress is the norm. The last thing they need is the stress that their consumer proposal might be rejected.

Consumer Proposals rarely get rejected at a meeting of creditors when properly managed

Are you already working with a Licensed Insolvency Trustee and are not quite sure if creditors reject consumer proposals often? While the end result is ultimately an accepted or rejected consumer proposal the chance that occurs prior to the end of 45 days (the initial amount of time creditors vote and request the Licensed Insolvency Trustee hold a meeting of creditors) is incredibly low.

In our experience what happens when a consumer proposal fails is the majority of creditors will vote against the proposal and the trustee will approach the debtor and ask them to accept the counter offer or allow the proposal to be rejected by the creditors.

Unfortunately, most consumers are unaware that in consumer proposals their creditors may accept a counter-counter offer (a counter to their counter) which, at the meeting of creditors which occurs after the initial 45 days, maybe accepted by their creditors without the consumer having to file for bankruptcy.

The Licensed Insolvency Trustee who administers the consumer proposal and all Licensed Insolvency Trustees are required to be impartial. Unfortunately, this prohibits a Licensed Insolvency Trustee from truly advocating for and fighting for the creditors to accept the proposal at the lowest possible proposal amount. If the proposal is rejected, the trustee will typically recommend that the consumer file for bankruptcy.

As we described in our in-depth Bankruptcy Guide, Licensed Insolvency Trustees have a potential conflict of interest due to how they are paid in a consumer proposal out of the money you pay to creditors. While it is impossible to know for certain, this may be why you hear so often that a consumer proposal failed.

The Trustee plays a critical role in the consumer proposal process but for the reasons above, we believe, it is important to have your own advocate to work with you during the process..

Setting your consumer proposal up for success

Because creditors have 45 days to vote on your consumer proposal it is extremely important to monitor each counter offer that your creditors may send your way. Whether a consumer proposal is accepted or rejected comes down to how your creditors vote.

If you have an advocate working for you, they will walk you through the entire voting process, they will assist you in monitoring the votes and helping you work on your budget to assess if a counter offer is received, whether it is viable for you.  

If you have yet to review all your options to deal with debt, and think filing a consumer proposal might be a good option, but aren’t quite sure how to go about the voting process don’t hesitate to reach out to us for assistance.  We can also review all other options.

If you have already filed a consumer proposal and have had creditors vote against your proposal and are wondering what happens if my creditors reject my consumer proposal then here are some tips for you:

Stay in constant communication with your licensed insolvency trustee

As the debtor, you have to take responsibility and become your own advocate.  The trustee has an obligation to ensure your rights are respected and that you understand the process. They are not there to ensure no creditors reject or accept your proposal. 

Don’t be shy to keep in constant communication with your trustee and ask questions. There are two dates that are particularly important. The first is the 45 day after your proposal is filed and the second is your meeting of creditors. This occurs if more than 25% of creditors decline your initial proposal offer by the 45th day and request a creditor meeting. It is important to note that when we talk about percentages of creditors voting in favour and accepting the proposal offer or when creditors reject a proposal we mean creditors that actually vote in the consumer proposal.

By design, it is at this meeting where the creditors and you, the consumer, have the opportunity to come to terms with each other. However, what happens in practice is all votes submitted by your creditors are typically received well in advance of this meeting and each creditor who participated in the vote has done so before this date. It is uncommon for anyone but you and the trustee to attend this meeting – it is rare for creditors to attend.  

Understand your creditors may vote against your proposal. Be prepared for when that happens.

Creditors sometimes reject consumer proposal offers. Your offer may be too low and your debt too high for them to think your offer is good. When you file your proposal it is very important you understand who your creditors are and how they typically vote. Do they often reject offers in a consumer proposal? Do they have the majority of debt? Have you adequately explained why you require the financial relief a consumer proposal offers?

Each creditor is different in how they approach the consumer proposal process. Be prepared for the worst-case and the voting to be rocky.  Be ready to explain why your offer is a good offer and why you need help.  Be prepared to rework your budget and present your own counter offer to find some middle ground.  Don’t just settle for a counter offer you know will be a struggle to pay.  Failing to make the payments is not in your interest or the creditor’s. 

What is important is that you stay calm and collected and understand why your creditors are voting against your consumer proposal. Remember, that creditors believe they are negotiating from a position of power because you are the one who owes them a debt. But remember, if you file bankruptcy the creditor will typically receive much less money. Creditors know this and while they may not accept initial offers they will usually accept something higher than your initial offer.

You may have to offer your creditors more money

When creditors say no to an offer in a consumer proposal they typically want more money. Obviously, each creditor is different (see tips above) but most creditors simply want more money. Contrary to popular belief, creditors do not want a debtor to file a bankruptcy. They would love an accepted consumer proposal as this means that both you and your creditor have come to terms.

Be careful about offering your creditors higher payments. It is very easy to offer creditors larger payments than they would normally accept. Most people in debt are used to making very large credit payments to their creditors per month and when comparing them to the average consumer proposal payment they seem very high. This leads many to offer payments in their proposal that are much larger than they need to be.

When your proposal is accepted, the battle isn’t over

Ideally, the consumer proposal you filed will be accepted by the majority of your creditors after the voting has concluded. The end goal is that you will have a handle on your debt, and have avoided bankruptcy.

Remember, though, that this ‘new’ debt has to be paid, and paid on time. Once filed, voting concluded, creditor accepted, and approved by the court your proposal if your proposal becomes 3 total payments in arrears your proposal will be annulled. For example, if your proposal was $100 per month as soon as you are $300 in arrears your proposal will be deemed to be annulled.

While you can revive your proposal (which requires advising each creditor all over again) your only option after this may be bankruptcy. We believe bankruptcy is the last resort the majority of individuals in Canada should consider so we would hate to see this occur so make sure to monitor your payments.

When should I be worried?

If you think your proposal will be rejected you can generally rest easy as it is very rare. If you would like an opinion on whether or not your situation is ‘risky’ (as of right now, this only really applies if over 50% of your debt load is to the government) please reach out.

We’d be more than happy to take a look at your situation. Our consultations are completely free and the only purpose is to educate you on every option you have available to you as a consumer proposal is only one option. We want to help you avoid a creditor rejecting your proposal and help get your proposal approved for as low of an amount reasonably possible.

Was your consumer proposal rejected?

If your proposal is rejected by your creditors you are not left without options. While many believe that bankruptcy is their only choice at this point, this usually isn’t true. There are other options that can be explored.

You need to understand if your proposal has a ‘rejected’ status associated with it or not. This is because a proposal is often withdrawn prior to it actually failing. If this is the case then an individual can actually file a 2nd proposal.

To determine if this is a good idea or not we highly recommend reaching out for professional assistance to see what can be done.

Frequently Asked Questions

Why are consumer proposals rejected?

Proposals fail when more than 50% of creditors vote against them. This is typically because the creditor doesn’t like the offer that a consumer is providing.

Can I withdraw my consumer proposal?

Yes – you can withdraw your consumer proposal anytime prior to the deemed rejection of a proposal which occurs if more 51% of voting creditors reject your proposal. You can also withdraw your proposal prior to, or at the meeting of creditors. You do so by informing your trustee you wish to withdraw your proposal.

Do most consumer proposals get accepted?

Yes – when working with us, nearly 100% of consumer proposals we assist in get accepted. The number is statistically 100%, meaning that the amount of proposals that haven’t worked is so small it might as well be zero. Usually, proposals that do not work are ones that were riskier from the get-go and the client was fully aware they may not work.

How long does a failed consumer proposal stay on my credit report?

A failed proposal will stay on your credit report for a period of 3 years from the date of failure or 6 years from the date it was filed, whichever comes first.

Suggested Reading

We’ve written an extremely in-depth article on consumer proposals. It is worth a read if you are considering one. As a Debtor in Canada, you need to be as informed as possible and understand exactly what happens to ensure you get a proposal approved.

Consumer proposal alternatives

Not sure a consumer proposal is the right option for you? We’ve created many topics on the various options that exist in Nova Scotia. Click here to read about Bankruptcy, a popular alternative to a proposal or here to read about some other options. If you’re simply wondering about how to budget your way out of your debt in an effective manner Click Here.

Debt Relief SpecialistThis article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring and financial rehabilitation strategies can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again.

We are proud members of the Canadian Debtors Association. We work for you, not your creditors.

If you are struggling with debt please reach out. It hurts to continue to suffer financially. 4 Pillars Halifax services Halifax, Dartmouth, Bedford, Sackville and the entirety of HRM.