Understanding Why a Consumer Proposal May Be Rejected

When debt starts piling up, a consumer proposal can feel like your way out—a chance to pause the chaos, avoid bankruptcy, and finally catch your breath. It’s flexible, structured, and designed to give you real relief while protecting your assets.

But here’s the truth: not every proposal gets accepted.

So, what happens if a consumer proposal is rejected? Can you fix it? Should you even file one in the first place? And how bad is a consumer proposal for your credit in 2025’s financial climate?

These are all valid questions — and in this post, we’ll break them down. You’ll learn why some proposals fail, what your options are if it happens to you, and how to improve your chances from the start.

But, 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!

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 — typically up to five years — while giving you some breathing room. It’s 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 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’ll typically work with the LIT, 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’re done, the rest of your debt is wiped clean.

Why Do Consumer Proposals Fail? Common Reasons and Rejection Rates

Most consumer proposals are accepted, but rejection does happen.

Understanding why some consumer proposals are rejected can help you avoid common pitfalls and improve your chances of success.

1.   When Your Debt Repayment Offer Is Not Enough

Creditors don’t expect you to pay back every last cent of what you owe — but they do want something that feels fair. If your offer’s too low, there’s a good chance they’ll say no.

In 2025, with inflation and interest rates still putting pressure on everyone’s wallets (creditors included), most lenders expect to get back around 25% to 50% of what you owe. If you’re only offering to repay 10%, that might not cut it.

The Office of the Superintendent of Bankruptcy says most accepted proposals fall closer to the 25% mark — so if your offer’s way below that, your trustee might suggest bumping it up.

So, let’s say you owe $20,000. A realistic offer would be somewhere between $5,000 and $10,000 total — that’s about $100 to $170 a month over five years. That kind of range tends to get taken more seriously.

But don’t stress if your first offer gets rejected.

A failed consumer proposal isn’t the end of the road — it just means it needs some adjusting. Your Licensed Insolvency Trustee (LIT) will walk you through how they’ll tweak it so creditors are more likely to accept next time.

2.   When You Have a High Debt-to-Income Ratio

Another thing that can throw off your proposal? A high debt-to-income ratio (DTI).

Your DTI compares how much you owe each month (loans, credit cards, etc.) to how much you earn.

For example, if your monthly debt payments are $2,000 and your income is $4,000, your DTI is 50%. It’s simple math, but for creditors, it’s a key signal of how likely you are to keep up with payments.

If your debt-to-income ratio is high, you might wonder, ‘Should I do a consumer proposal?’— here’s the good news: having a high debt-to-income ratio doesn’t automatically mean your proposal will be rejected.

Creditors know everyone’s situation is different—and if your income is steady and your offer makes sense, there’s still a strong chance it’ll be accepted.

And just for context: the average Canadian household now owes about $1.80 for every $1.00 earned after tax. That’s a national debt-to-income ratio of 180% — which proves that a lot of people are in the same boat.

So no, a high DTI doesn’t mean you’re out of options. It just means your proposal needs to be thoughtful, realistic, and supported by a strong plan — which is exactly what your LIT is there to help with.

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

In today’s economic climate, it’s fair to ask: how bad is it to file a consumer proposal in 2025? The answer depends on your goals.

Yes, it will lower your credit score and stay on your report for a few years — but it’s also a proactive step toward becoming debt-free. And with rising living costs and interest rates across Canada, more people are opting for consumer proposals over bankruptcy or endlessly juggling minimum payments.

That said, 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.

What Happens If a Consumer Proposal Is Rejected?

If your consumer proposal is rejected, you won’t start payments, and the process effectively stops. But it’s not the end of the road. With your LIT you can:

• Renegotiate and resubmit your proposal with your trustee’s help.
• Explore alternative debt relief options, like debt consolidation or budgeting support.
• File for bankruptcy, if no other options are feasible.

A failed consumer proposal can still lead to a successful outcome — it just may take a second attempt or a shift in strategy.

How to Boost Your Chances of Approval

If you want to avoid a rejected or failed consumer proposal, there are a few key things you can do:

1. Work With Trustworthy Debt Experts

Consumer proposals must be filed through a Licensed Insolvency Trustee. While working with a LIT doesn’t guarantee approval, it gives you the best shot at crafting a strong, credible proposal.

2. Offer a Fair and Realistic Proposal

Avoid going too low or overpromising. Your LIT can help you find the balance between what’s affordable for you and what’s acceptable to creditors.

3. Address Creditor Concerns Early

If you’ve recently changed jobs or your income has improved, make sure creditors know. The more context you provide, the more confident they’ll feel about accepting your proposal.

How Farber Can Help

If you’re thinking about a consumer proposal but feeling unsure — maybe you’re worried it’ll be rejected or asking yourself how bad is a consumer proposal, really? — just know: you’re not the only one asking those questions.

At Farber, we’ve spent over 46 years helping Canadians navigate tough financial decisions with confidence. We’ve seen it all: rejected offers, last-minute changes, second attempts that worked. Whether you’re just starting out or feeling stuck after a failed proposal, we’re here to help you move forward.

Book a free consultation today.

You don’t have to figure this out alone. And you don’t have to get it perfect the first time. What matters most is that you’re taking steps to take back control — and we’ll be here to support you through every one of them.