Will my Creditors Accept my Consumer Proposal?

Will my Creditors Accept my Consumer Proposal?

Written by Caitlin Wood
Last Updated March 22, 2023

If you have already familiarized yourself with the general details of a consumer proposal, then you are likely aware of its benefits. It is an effective way of receiving debt relief without losing assets as you do with a bankruptcy. However, while a consumer proposal is a more sought option than bankruptcy, you need to ensure your creditors will accept the proposal. Here’s how to qualify for a consumer proposal. 

How To Qualify For A Consumer Proposal? 

A consumer proposal generally allows you to pay back a portion of the debt you owe, such as personal loans, credit cards and other unsecured debts. Its final cost will depend on your income, assets, and sources of your debts. 

To qualify for a consumer proposal, you need to ensure your creditors accept the proposal. Creditors generally only accept your consumer proposal under these kinds of circumstances:  

The Proposal Offers At Least What They Would Get If You Declared Bankruptcy

Bankruptcy is the most serious debt management solution that exists in Canada. It basically relinquishes you from all your debts and, in exchange, you make a series of payments toward the bankruptcy court. The amount you have to pay your creditors is based mainly on your monthly earnings and the number of people in your household.

So, if your consumer proposal doesn’t give them as much money back as a bankruptcy would, most creditors will deny your offer and wait until you declare bankruptcy instead.

Your Consumer Proposal Payments Are High Enough To Accept

Your consumer proposal’s chances of approval may also depend on how your creditors operate. For instance, many creditors will accept around ⅓ of your total debt amount. So, if you owe them $30,000 in debt, they might agree to a $10,000 repayment. That said, creditors aren’t obligated to accept right away, as they would be with a bankruptcy. 

Basically, a consumer proposal is called a “proposal” because a creditor can accept it, deny it or make you a counter offer. Most consumer proposals are rejected when:

  • The amount of money that the borrower requests to keep for their essential expenses is considered unfair (even though this doesn’t happen very often). 
  • The creditors who hold the majority of your debts vote in favor of a counter offer, which may result in a higher payment amount.   

How To Qualify For A Consumer Proposal: How Much Should You Offer To Get Your Creditors To Accept?

As mentioned, there are several different factors that can lead to the rejection of your consumer proposal. For your proposal to be accepted, you’ll normally need to offer:

  • More Than The Bankruptcy Amount – A general rule of thumb is to offer to pay your creditors a little more with your consumer proposal than they would get if you filed for bankruptcy. The bankruptcy court would decide how much you owe. 
  • The Minimum Amount To Meet Your Creditor’s Internal Policy – Consumer proposals are often advertised as being able to save you 70% of your debts, as most lenders will accept 30%, unless you have a high income or a lot of assets.  

Every creditor is different and the simple truth is that creditors accept different proposals based on different features, such as, deciding to negotiate a debt settlement or filing a consumer proposal. You want to show that you’re willing to work with your creditors by showing some flexibility in negotiating in order to get out your debt. 

Why You Should Design Your Proposal According To The Creditors Who Hold 51% Of Your Debt?

In order to qualify for a consumer proposal, you need to get the creditors who hold majority (51%) of your debt. As such, constructing an offer that will be appealing to the creditors that hold a minimum of fifty-one percent of your debt can help you qualify for the consumer proposal. This is because the proposal will be in effect as soon as a simple majority of the creditors accept your proposal. 

Who Negotiates With The Creditors?

A consumer proposal is a legal process that can only be conducted by a Licensed Insolvency Trustee (LIT). They will facilitate the proposal through the bankruptcy court in your region. Although you will work together, it’s your LIT’s responsibility to handle all negotiations with your creditors on your behalf. They can also offer you advice and direct you toward the best decisions. 

Watch out, as some “debt-relief” companies will claim to offer consumer proposals. They are really trying to trick you into paying unnecessary fees. According to law, Licensed Insolvency Trustees must be free of charge and certified by the Government of Canada.

How Long Does It Take Qualify For A Consumer Proposal?

After they review your case, your LIT will draw up your consumer proposal and submit it to your creditors. It should contain a report detailing your personal situation and reasons for financial turmoil. The creditors will then have 45 days to accept or deny the proposal. If one is arranged, they may also make this decision before or during a creditor meeting. 

When Is A Consumer Proposal Accepted? 

Remember, a number of factors could lead to the approval or denial of your consumer proposal. Generally speaking, here;s when your creditors will accept your proposal: 

  • If The Majority Of Your Creditors Accept. For your consumer proposal to go through, at least 75% of your creditors must agree to it. If less than 25% of them vote against the proposal, they’ll have no choice but to abide by the agreement.
  • Upon Expiry Of The 45 Days. If the 45-day decision period ends and less than 25% of your creditors (in dollar value) have requested a meeting through the LIT, your consumer proposal will be deemed “accepted” and proceed automatically.
  • If There’s A Creditors Meeting. If more than 25% of them reject the initial offer, your LIT will arrange a meeting with your creditors. Here, your creditors can discuss and vote. Once most of them accept the new proposal, it may be deemed as filed or amended.

Make sure to offer your creditors a reasonable proposal. If the majority vote against it in that meeting, their rights will be restored. This means they can start or continue debt collection proceedings against you. This can also happen within 15 days of creditor approval if the court is asked to review your consumer proposal and decides to reject it.

What Happens During A Creditors Meeting?

If a creditor were representing around twenty-five percent of your debt and directly voted against your proposal, your trustee would then schedule a meeting with your creditors when votes would be cast again. Essentially, you just have to hope for a fifty-one percent approval at the meeting of your creditors. Even if some creditors vote against your proposal, depending on the weight they carry, their votes could be of relatively little importance.

Should You File A Consumer Proposal Or A Personal Bankruptcy?

Generally, creditors prefer consumer proposals as opposed to personal bankruptcy. This is because they will be refunded more of what they are owed. That being said, creditors also usually receive less from a consumer proposal compared to other debt solutions. It is important to be able to show that you have already tried other debt solutions without any success. For example, credit counselling and debt consolidation. 

If you can make a convincing argument that personal bankruptcy is your only option if they don’t accept your proposal, then creditors are more likely to accept your consumer proposal.

Bottom Line

It is a good idea to make sure you have exhausted all other options before filing a consumer proposal. There are always other options, such as a debt consolidation loan or a debt management program. There are countless financial experts that have the qualification necessary to help you deal with your debt.

Consumer Proposal FAQs

Can a single creditor lead to the rejection of my consumer proposal?

Once your consumer proposal is submitted, each of your creditors is given a vote for every dollar you owe them. Luckily, a single creditor can’t usually lead to your proposal being rejected, since voting happens according to a majority rules process. The only exception would be if that single creditor holds the majority (over 50%) of your debt.

Do creditors prefer you to file for a consumer proposal or bankruptcy?

Since they’ll probably receive more of what they’re owed, most creditors would rather approve your consumer proposal than wait for you to declare bankruptcy. That said, a consumer proposal may not offer them as much money back as other debt solutions like debt consolidation and credit counselling would. If you can prove that bankruptcy is the only other possible option for you, creditors will usually be more willing to accept it.

What happens If creditors don’t vote?

A creditor must vote in writing in order to reject your proposal. Unless a creditor votes against your proposal, the lack of vote a will be interpreted as being in favour of your proposal.

Are my assets protected in a consumer proposal? 

If your consumer proposal is accepted, all of your assets are protected from seizure. The more money you are able to offer your creditors (this is where flexibility comes in), the more likely the proposal will be accepted, resulting in allowing you keep all of your assets.

Can I Approach My Creditors On My Own?

Although a lot of people try to approach creditors on their own thinking this will improve their chances, this is not the case. That is because this process cannot be carried out informally; a consumer proposal is a binding legal agreement.  If the proposal is not filed properly, creditors are unlikely to accept your proposal. What you need to do is contact a licensed bankruptcy trustee located in your province or territory. This is because you file a consumer proposal the same way you would file for bankruptcy.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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