Can a consumer proposal be rejected?

Posted on 11 July 2021

Written by Trevor Pringle

Filing a consumer proposal is an excellent form of debt relief for many Canadians, and a great alternative to bankruptcy. For most, a consumer proposal is a way of clearing the majority of your debt, while largely maintaining your assets. Although most Canadians are successful in filing a consumer proposal, many wonder if a consumer proposal can be rejected. The answer is yes, on a few occasions, it can. If you are struggling with unmanageable debt, the best thing to do is to speak to a bankruptcy trustee. They will offer advice on the best form of debt relief for your circumstances, as well as bankruptcy alternatives. A Licensed Insolvency Trustee will also walk you through each step of filing a consumer proposal – even if it is rejected.

What is a consumer proposal?

In Canada, a consumer proposal is a form of debt relief that is legally supported by the government. A popular alternative to bankruptcy, it is an affordable way to clear the majority of your debts while allowing you to keep your assets. A consumer proposal must be filed by a Licensed Insolvency Trustee, the only professional legally able to administer them. At Spergel, you will be assigned your own trustee to discuss your debt relief options, and to walk you through each step of the process. They will work with you to make a reasonable agreement on repayment terms to your creditors, made over monthly payments. Often, this negotiation can reduce your debt by up to 80%, as creditors would rather receive a settlement over you filing bankruptcy. Learn more about the advantages of filing a consumer proposal. If creditors agree to your proposal in the voting process, you will repay creditors the agreed amount and then be cleared of your remaining debt.

What happens in a consumer proposal voting process?

The voting process is integral to ensuring a consumer proposal is or is not legally agreed. Once your consumer proposal has been filed by a Licensed Insolvency Trustee, all creditors have 45 days to review the proposal. Within this time period, each creditor must either agree or ask for a meeting of creditors if they would prefer for the proposal to go through a voting process. Should a meeting not be requested by at least one creditor owed a quarter or more of the proposal amount, it is considered approved. If, however, a meeting is requested by a creditor owed at least 25% of the debt being filed, the Licensed Insolvency Trustee will need to summon a meeting of creditors. This meeting serves to host the voting process. Creditors can either attend or send a vote to the trustee. During this meeting, each creditor will need to accept or reject the proposal as a vote. Crucially, each creditor gets a vote for each dollar owed, meaning the debt is attributed proportionately to the decision.

How can creditors vote?

When it comes to the voting process, each creditor has a choice of voting one of the following options:

  • To accept and vote ‘yes’ for the consumer proposal
  • To reject and vote ‘no’ against the consumer proposal
  • To vote ‘no’ and request changes to the consumer proposal
  • To refuse a vote and do nothing

The Licensed Insolvency Trustee will review each of the votes to determine whether or not the consumer proposal has been accepted. Should the majority approve the consumer proposal, it legally stands for all creditors involved.

Can a consumer proposal be rejected?

Although fairly unusual, it is possible that creditors will vote to reject a consumer proposal. If this happens, it is important to remember your Licensed Insolvency Trustee will be on hand to support you. The first step would be for your trustee to see if any creditors would like to provide a counter-offer to the proposal. If there are, your trustee will review them with you to see if they would be affordable and therefore worth accepting or rejecting. If there are no counter-offers, your trustee will negotiate the terms with your creditors, depending on what you are able to repay. Even if negotiation is not an option, there are alternative debt relief options including bankruptcy to be explored, so there is always a solution for your debt.

Why would creditors reject a consumer proposal?

Plainly and simply, most creditors will reject a consumer proposal because they feel they are owed more. If creditors feel the proposal is too low, your Licensed Insolvency Trustee will work with you to reconsider what is affordable, as well as reasonable. Typically, creditors will always prefer to agree to a consumer proposal because it means gaining more repayment than other forms of debt relief like bankruptcy. That said, for a consumer proposal, your trustee will need to work with you to clearly demonstrate that you are proposing as much as is physically affordable. Ultimately, an experienced trustee will always help you to find a form of debt relief to put your mind at ease and enable you to have a fresh financial future.

If you are worried about a consumer proposal being rejected, or want to know more about life after a consumer proposal, book a free consultation with Spergel. Our Licensed Insolvency Trustees have been helping Canadians become debt free for over thirty years, and we can walk you through your debt relief options, including filing a consumer proposal. If you are concerned about debt, reach out to us today – you owe it to yourself.


Trevor Pringle

Trevor B. Pringle is a Chartered Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on consumer proposals and small business debt. When Trevor isn't at the office providing debt relief to Canadians and corporations with his innovative problem-solving skills, Trevor enjoys regular trail runs in the Dundas Valley.

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