Understanding Consumer Proposals: Rejection Rates and Potential Outcomes
Dealing with financial difficulties can be a daunting task. One common solution in many jurisdictions is the filing of a consumer proposal. However, the question often arises: how often do consumer proposals get denied?
What is a Consumer Proposal?
A consumer proposal is an agreement arranged between you and your creditors, which is overseen by a Licensed Insolvency Trustee (LIT). Its objective is to aid in lowering your debt amount while allowing you to retain your assets. These might include your home, car, RRSPs, tax refunds, and GST credits.
To be eligible for a consumer proposal, you must demonstrate insolvency, which means you are unable to repay your debts. Moreover, your overall debt must be less than a certain threshold, excluding your mortgage. This amount varies by jurisdiction.
The Success Rate of Consumer Proposals
In many cases, consumer proposals enjoy a high rate of acceptance, often exceeding 90%. This is due to the fact that these proposals are generally formulated to be agreeable to creditors and incorporate the terms and conditions they typically prefer.
Creditors are aware that if a proposal is not ultimately approved, the debtor may contemplate filing for bankruptcy. In such a scenario, creditors are likely to receive less than what was offered in the proposal.
The Voting Process: How Creditors Decide
The fate of a consumer proposal lies in the hands of your creditors who exercise their voting rights to accept or reject it. The voting process is based on a majority rule principle. If more than half of the creditors vote in favor, even those who voted against it must comply.
In the meeting of creditors, each creditor gets a vote for every dollar they’re owed. As part of the voting process, a creditor may:
- Accept and vote “yes” for the consumer proposal.
- Reject and vote “no” against the consumer proposal.
- Vote “no” and request modifications to the consumer proposal.
- Choose not to vote.
Why Might a Consumer Proposal Be Rejected?
Despite the high acceptance rates, there are occasions when a consumer proposal may be rejected. Common reasons for rejection include the creditors’ belief that you should be contributing more to the proposal. If this is the case, your LIT will work with you to reassess what is affordable and reasonable.
Navigating a Rejection: What are the Alternatives?
In the event of rejection, you still have several potential options:
- You can renegotiate the terms of your proposal.
- You can withdraw and file a consumer proposal again at a future date.
- You can withdraw your proposal and explore other debt relief options.
- You may file for bankruptcy instead.
Filing for bankruptcy is a legal process that can relieve your debt amount, which can include your unsecured debts. However, to be eligible for bankruptcy, you must owe at least a certain amount in unsecured debt, and your debt must surpass the value of your assets. A LIT may use your non-exempt assets to repay what you owe to your creditors.
Conclusion
The question, “how often do consumer proposals get denied?” is not easy to answer as the rates can vary based on a multitude of factors. However, understanding the process and potential outcomes can help you make informed decisions about your financial future.
Don’t hesitate to consult with a professional if you’re considering a consumer proposal or other debt relief options. They can guide you through the process and help you navigate any obstacles, including potential proposal rejections. It’s important to remember that even if your proposal is denied, there are still options available to help you regain control of your financial situation.
