What do you do if your consumer proposal is rejected?
We discussed in another article that the chances of a consumer proposal being rejected are extremely slim.
In the unfortunate event that your proposal does get rejected by creditors what are your options?
Your options become quite limited in the event this occurs. If this does occur we highly recommend you consult a professional to determine your next steps. Several factors go into deciding what is the best course of action. Which creditors you have, how your creditors voted, how your file was initially structured, why you had to file initially, your current situation, and your long-term goals.
There is no definitive ‘best answer’. While most would simply recommend bankruptcy because it is easiest there are other options that you can explore first.
Withdrawing your proposal and refiling
Anytime prior to creditor or court approval you are able to withdraw your proposal. This means that your ability to file another proposal still remains.
Be warned – if you decide to look at refiling, the stay of proceedings (legal protection from your creditors) you receive when filing ceases. You are then vulnerable to creditor collection and legal actions. The stay of proceedings does come back in force though if a new proposal or insolvency is filed.
This option mainly means you can file another consumer proposal. We have found that while this option can work it isn’t always the smartest method as if the creditors said no once, they will most likely say no again. In saying this, this isn’t always the case. Structuring the file in a different manner may provide different results and so it can be a good method.
The main factor for this is the reason why you filed paired with your long-term goals. What we mean by this is if you have a really compelling reason for filing a proposal that seemingly was missed by creditors (potentially because of whose desk it fell on) so you may want to refile to have this second opportunity. We have had several clients where it made no sense for them to file bankruptcy due to several factors. They decided to look at refiling their proposal with great results. This usually is the best option if your reason is due to health concerns or marital breakdowns that were completely out of your control.
It is important if you decide to pursue this option that your file be structured or proposed differently. You can not expect different results if you do not change things up. There are many ways to structure a file differently. Certainly too many to cover in a blog article so consult a professional.
Filing for bankruptcy
You can always opt to file a bankruptcy if your proposal is rejected. While this isn’t a suggested option (as you wouldn’t have filed a proposal if you thought bankruptcy was a better option) it certainly exists.
By the time your proposal is rejected you should know how much a bankruptcy would cost you. This number is based upon your income and assets. I cover this in-depth in our article about bankruptcy.
If you decide to file bankruptcy it will require another appointment to sign more paperwork. This paperwork will be similar to your proposal paperwork with a few differences. While this is by far the easiest option to pursue if a proposal gets rejected, and often people navigate to it because of the helpless feeling they have after the rejection, it must be a carefully planned decision to ensure you don’t end up right back where you were.
What if your proposal is rejected and you do not want to refile another proposal or file bankruptcy? You can decide to do absolutely nothing, let your proposal fail, and continue living your life. While this is definitely not an option we would recommend in most situations it can make sense in extremely rare instances.
This will leave you vulnerable to the possibility of collection and legal action. Because of this, you will want to address the debt at some point. Doing nothing is certainly the last resort option – in our opinion even more so than bankruptcy, if you have already attempted a proposal.
A failing or rejected proposal should be an extremely rare occurrence. If you are looking at filing a proposal and you are talking to professionals feel free to ask them how many rejected or failing proposals they have seen. If they say stuff like ‘it happens from time to time’ then it probably happens far more likely than you should be comfortable with. Work with a company that takes the time to understand your goals, your current situation, and outlines the best possible way for you to get out of debt.
This 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 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. 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.