Understanding Why a Consumer Proposal May Be Rejected

When you are drowning in debt, a consumer proposal often seems like a lifeline. It is a flexible, structured way to give you debt relief, avoid bankruptcy, and keep your assets. However, the reality is that not every consumer proposal may get the green light from creditors. So, why would a consumer proposal be rejected, and what can you do to improve your chances of getting it approved?

While we will cover the reasons why a consumer proposal may be rejected, it is highly recommended that you speak with a debt expert to understand your options, and which may be best for you. You can book a free no-obligation, consultation with our team to discuss a plan that fits with your unique financial situation!

Now that we have covered that, let’s dive into what you came here for!

First Off, What is a Consumer Proposal?

A consumer proposal is a formal legally binding agreement between you and your creditors that lets you pay off a portion of your debt over time—up to five years—while giving you some breathing room. It is designed to help you avoid the harsher effects of bankruptcy while still tackling your debt in a manageable way.

It can help you keep your assets, stop collection calls and reduce your debt, often by up to 80%. Your Licensed Insolvency Trustee (LIT) will handle all the negotiations with your creditors, which can help take the pressure off you.

The whole process starts with a Debt Solutions Manager who will work with you to understand your options. Then you will typically work with the Licensed Insolvency Trustee, who acts as a mediator between you and your creditors. Your LIT helps you come up with a proposal that shows how much of your debt you can realistically repay.

Once you file the proposal, creditors have 45 days to accept or reject it. If they give it the green light, you start making those monthly payments, and once you are done, the rest of your debt is wiped clean.

However, in some cases, your consumer proposal may get rejected. But why?

Common Reasons for Consumer Proposal Rejection

Most consumer proposals are accepted, but rejections do happen. Understanding the reasons behind a rejected consumer proposal can help you avoid making the same mistakes.

When Your Debt Repayment Offer Is Not Enough

One of the most common reasons consumer proposals get turned down is when the repayment offer is too low. Creditors want to recover a reasonable amount of what they are owed—if your offer only scratches the surface, they may decide it is just not worth it.

So, what are creditors really looking for? They are not expecting you to pay back every cent, but they do want a fair offer. If you are proposing to repay only 10% of your debt, for example, that could be an automatic rejection. A more realistic offer usually falls somewhere between 20% and 50%, depending on your financial situation.

When You Have a High Debt-to-Income Ratio

Another common roadblock is having a high debt-to-income ratio. This goes hand in hand with the earlier point on not proposing a reasonable debt repayment offer to your creditors.

If you owe a lot but do not have the income to back up the payments you are proposing, creditors may see it as a red flag. If your income does not realistically cover the proposed repayment, creditors may see your proposal as too risky. While you may be eager to repay as much as possible, you will need to be realistic about what you can afford to pay back. The last thing you want is to have the consumer proposal annulled due to missed payments.

Ideally, you should be proposing an amount that is reasonable for you but also enticing enough for the creditor. Working with a Licensed Insolvency Trustee can help you figure out what that sweet spot could be for both parties.

External Factors That Can Affect Your Consumer Proposal

Even when you are doing everything right, there are outside factors that might lead to your consumer proposal being rejected.

When Creditors Do Not Cooperate

Not all creditors are easy to work with, but a great Licensed Insolvency Trustee (LIT) can step in and find a solution that works for both you and the creditor. It is about finding that sweet spot where everyone is happy.

Economic Downturns

Sometimes, the economy plays a role in whether or not your proposal gets the green light. During tough economic times, creditors can be more cautious and less likely to take risks. They might have stricter standards for approving proposals when they are worried about their own finances.

How to Boost Your Chances of Approval

Want to improve your odds of getting your consumer proposal accepted? Here are a few tips that can make a big difference:

Work with Trustworthy Debt Experts

Consumer proposals can only be managed and filed by Licensed Insolvency Trustees like us. We will work with you to administer and manage your consumer proposal from beginning to end. While working with a LIT may not necessarily boost your chances per se, but they will be there to support you to ensure you have everything you need for filing.

Offer a Fair and Realistic Proposal

When it comes to your proposal, balance is key. Offering too little might get it rejected, while offering too much could make repayment a struggle. A well-thought-out plan that works for both you and your creditors is what you are aiming for. Your LIT will help you strike that balance, ensuring the proposal is fair and sustainable.

Address Creditor Concerns Early

Do not wait for creditors to raise issues—get ahead of them! Be transparent about your financial improvements and why the issues you faced before will not impact your ability to follow through now. By addressing their concerns upfront, you will give them more confidence that you are serious and capable of sticking to the plan.

How Farber Can Help

If you are considering a consumer proposal but are worried about rejection, Farber is here to help. We will walk you through the process, from understanding how to qualify for a consumer proposal to helping you craft a proposal that creditors are more likely to accept.

Working with a Licensed Insolvency Trustee can make all the difference in getting your proposal accepted. We know the common reasons why creditors reject proposals, and we are experts at addressing those issues before they arise.

With our guidance, you can avoid the common pitfalls that lead to rejection and move toward a brighter financial future. We are even here to help if any circumstances change during your consumer proposal and you may need changes made.

If you are ready to take the next step, book a free consultation today. Let’s work together to get your finances back on track, build a financial plan, up your credit score, and help you avoid a rejected consumer proposal!