Consumer proposals are rarely rejected; however, if your creditors do reject your consumer proposal, all hope is not lost.
When you file a consumer proposal, your creditors have 45 days to submit votes on your proposal.
When considering your consumer proposal, your creditors may do one of the following:
- Accept your terms as filed (this includes terms such as the payment amount and the length of the proposal);
- Reject your terms (vote no);
- Reject your terms and ask for a creditors meeting; or
- Do nothing.
Only if a creditors’ meeting is requested are votes counted. If no meeting is required, your proposal is automatically approved. It is only at a creditors’ meeting that your proposal can be rejected. This process is helpful because it provides an opportunity to discuss and renegotiate other terms that might help the proposal pass.
One creditor cannot normally kill a proposal
Consumer proposals are accepted or rejected based on votes by all your creditors. Each creditor gets a vote for every dollar you owe them.
Voting in a consumer proposal operates under a majority rules process. This means that if more than half of your debts are voted in favour of your proposal, the creditor who voted “no” must participate in the consumer proposal.
The only time a single creditor has sway over whether your proposal succeeds is if they are your majority creditor, meaning they are owed more than 50% of the claims filed in the voting process.
What happens when the majority of creditors vote no?
If a vote is held, and the majority of creditors vote “no”, this does not mean the end of the process.
In most cases, creditors will request a change to the original terms that you offered because they know that if you declare bankruptcy, they will most likely get less than you offered in the proposal. This could mean asking for a few more dollars per month or they may ask for a change regarding the length of your payment plan – keep in mind that 60 months (five years) is the maximum amount of time that a proposal can last.
If you agree to meet the creditor’s terms, your consumer proposal is deemed to be accepted as revised. However, if the terms are not acceptable to you, a counter-offer can be made to your creditors.
If your creditors reject your proposal, you have options. You can:
- Renegotiate the terms of your proposal (i.e. the amount or length);
- Withdraw your proposal and file for bankruptcy; or
- Withdraw your proposal and pursue a different debt relief option such as credit counselling, a debt management plan or work toward paying off your debt on your own.
- Withdraw your proposal and file again at a future date. You can file again at any time, however, if you file another proposal within six months the automatic stay provisions of the Bankruptcy & Insolvency Act do not apply. It’s best to wait the minimum six months so you have full protection from creditor actions again.
The best advice we can give is to make a proposal to your creditors that is reasonable in terms of what you can afford to repay and what they might expect to receive. You want to reduce the likelihood that your proposal will be rejected as it speeds up the process and is much less stressful for you.
If you’re considering debt relief options and worry that your consumer proposal will be rejected by your creditors, speak to a local consumer proposal administrator to discuss your situation and come up with an affordable proposal that will benefit both you and your creditors.