What Happens if My Creditors Reject My Consumer Proposal?

Understanding Consumer Proposals and Creditor Rejections

Are you contemplating filing a consumer proposal? If so, you might be apprehensive about how your creditors will respond. You may be asking: What Happens if My Creditors Reject My Consumer Proposal? This article aims to provide detailed insights into this matter.

The Popularity of Consumer Proposals

Firstly, it’s encouraging to note that a substantial number of consumer proposals are accepted by creditors, often within the preliminary 45-day voting period. This is largely due to the expertise of the Licensed Insolvency Trustee (LIT), a professional who helps you develop and file a proposal that your creditors will likely find acceptable. As specialists in insolvency solutions, LITs are well-versed in what creditors typically seek in a consumer proposal.

It’s also essential to recognize that creditors often favor consumer proposals over bankruptcies. This is because consumer proposals usually guarantee a higher return on the amount owed to them compared to bankruptcy. A majority of debtors also prefer consumer proposals due to their beneficial characteristics.

Crafting the Consumer Proposal

When you collaborate with an LIT to formulate the payment plan in your proposal, they will thoroughly examine your income, expenses, and assets. This helps determine a monthly payment that you can feasibly manage. Your creditors will receive a portion of this information when you file the proposal.

What May Lead to Proposal Rejection?

Despite the high acceptance rate, it’s important to understand why a creditor might reject a consumer proposal. Most refusals are due to the debtor insisting on maintaining luxury expenses such as expensive vacations or other high-cost lifestyle choices during the proposal term. Conversely, if a creditor perceives that you could afford to contribute more to your proposal by eliminating unnecessary expenses, they might reject it.

How Do Creditors Communicate Their Decision?

One might imagine a formal meeting of creditors discussing the details of your proposal and asking you questions. However, this scenario is rare. In reality, each creditor gets a “vote” for each dollar of their claim, and they have 45 days from the filing of the consumer proposal to accept or reject it. Here’s how they can respond:

  • They can inform your LIT of their acceptance of the proposal.
  • They can choose not to respond, in which case, they are considered to have accepted the proposal.
  • Creditors can inform your LIT of their rejection of the proposal.
  • They can inform your LIT of their rejection of the proposal and request a creditors’ meeting.

Implications of a Rejection

If a creditor rejects your proposal but doesn’t request a creditors’ meeting, their rejection doesn’t impact the proposal. Even if creditors whose combined votes are less than 25% of total votes reject your proposal and request a meeting, your proposal is still accepted.

However, if creditors representing more than 25% of the total votes reject your proposal and request a meeting, a creditors’ meeting is called. This meeting must be held within 21 days of being requested.

The Creditors’ Meeting and Voting

Before the meeting date, your Trustee will communicate with the creditors and you. They will understand what conditions the creditors need to approve the proposal and what conditions you can fulfill. If an agreement is reached, the creditors can confirm their approval of the modified proposal by informing your Trustee. At this point, 50% of votes must be ‘yes’ for the proposal to be approved.

What To Do If Your Proposal Is Rejected

In the unlikely scenario that your consumer proposal is ultimately rejected, you have several options. The most common reasons for a rejection are that the creditors want a larger monthly payment or a more extended payment term. Here are some alternatives:

You can withdraw your proposal and explore other options such as debt consolidation or an enhanced job search.

You can withdraw your proposal, reassess your situation, and apply for a consumer proposal again.

If your proposal was the maximum you could pay and other options are not suitable, you can withdraw your proposal and file for bankruptcy.

Can You File A Second Consumer Proposal?

If your initial consumer proposal is unsuccessful, you can file a new consumer proposal at any time. The best reason to do this is a change in your circumstances, such as a new job that allows you to propose a more robust payment plan. Most LITs recommend waiting for six months from the initial filing before filing for a consumer proposal again.

Interestingly, if your consumer proposal is successful, and you complete the terms of your proposal and receive your Certificate of Completion, you can file a new consumer proposal at any time in the future if you become insolvent again.

Consulting a Licensed Insolvency Trustee

In Canada, you must consult a Licensed Insolvency Trustee (LIT) to file a consumer proposal or file for bankruptcy. LITs are federally licensed professionals who work for the best outcomes for both debtors and creditors. They are experts in bankruptcy, consumer proposals, and many alternatives.

Your first meeting with an LIT is confidential, free of charge, and without obligation. Most debtors come away from their first meeting with an LIT feeling a weight has been lifted. Learning about your options is empowering and is your first step on the road to a better financial future.

Find a Trustee near you today to start your journey towards financial stability!

Note: Information about the six-month rule regarding submitting a new consumer proposal is sourced from the Bankruptcy and Insolvency Act, 69.2 (2).

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