If you’re struggling with debt in British Columbia and considering a consumer proposal, one question might weigh heavily on your mind: Can a consumer proposal be rejected? The answer is yes, but rejection isn’t the end of the road. In this blog, we’ll explore how the consumer proposal process works in BC, why some proposals get rejected, and how to avoid that outcome.
In British Columbia, a consumer proposal is a legally binding agreement filed under the Bankruptcy and Insolvency Act (BIA), negotiated between you and your unsecured creditors through a Licensed Insolvency Trustee (LIT). While most proposals are accepted, they can be rejected if creditors believe the offer isn’t reasonable. Proposals can be modified, renegotiated, or, in some cases, lead to bankruptcy if not accepted.
Understanding the Basics of Consumer Proposals
A consumer proposal is a formal, court-approved debt settlement option available to individuals who owe less than $250,000 (excluding the mortgage on their principal residence). It allows you to:
- Reduce your total unsecured debt
- Make affordable monthly payments over up to five years
- Avoid bankruptcy and keep your assets
In BC, only a Licensed Insolvency Trustee can file a consumer proposal on your behalf. Once filed, the proposal is legally binding on all unsecured creditors if it is accepted by the majority (based on debt value).
For more information read our Complete Guide to Consumer Proposals!
Who Can Reject a Consumer Proposal?
The decision to accept or reject your proposal lies with your unsecured creditors. Here’s how the process works:
- After filing, creditors have 45 days to vote.
- If creditors holding more than 50% of the total dollar value of your debt vote “yes,” the proposal is deemed accepted.
- If they vote “no,” the proposal is rejected unless it is revised or appealed.
- The Office of the Superintendent of Bankruptcy (OSB) oversees the process but does not vote.
In some cases, if no creditors request a meeting during the 45-day period, the proposal is automatically deemed accepted.
5 Common Reasons a Consumer Proposal Might Be Rejected
Even though consumer proposals are often accepted, rejections do happen and understanding the reasons is key to avoiding pitfalls. Here are some common factors that lead to a rejected proposal in British Columbia:
1. Low Repayment Offer Relative to Bankruptcy
Creditors compare your proposal to what they would recover if you filed for bankruptcy. If your offer doesn’t result in a higher or comparable return, especially after trustee fees and disbursements, creditors may reject it.
Example: If your surplus income in a bankruptcy would generate $15,000 in payments, but your consumer proposal only offers $10,000, creditors have a financial incentive to vote against it.
2. Omissions or Inconsistencies in Your Financial Disclosure
If your LIT submits a proposal that doesn’t fully disclose your income, assets, or liabilities or contains inaccuracies or vague entries, creditors may question the legitimacy of your offer. Transparency is essential.
3. Unrealistic Monthly Payments
Creditors want to see that you can sustain your monthly payments throughout the term of the proposal (up to five years). If your proposal is based on unrealistically high income expectations or underestimates your living costs, it may appear unworkable and thus unacceptable.
4. Previous Insolvency Proceedings
Creditors are more skeptical if you’ve previously filed for bankruptcy or failed to complete a consumer proposal. They may view your current filing as less credible or higher risk.
5. Creditor Strategy or Policy
Some institutional creditors (e.g., banks or credit card companies) may have internal thresholds, such as a minimum repayment percentage (e.g., 25%-35% of the original debt) or may reject proposals as a strategy to encourage lump-sum settlements.
How to Avoid Rejection
While rejection is possible, careful preparation significantly reduces the risk. Here’s how to strengthen your proposal and improve your chances of success in BC:
1. Work With an Experienced BC-Based LIT
Choose a Licensed Insolvency Trustee with strong experience negotiating with creditors common in BC (e.g., BMO, RBC, ICBC, CRA). They understand what different creditors want and can tailor proposals accordingly.
2. Provide Full and Accurate Financial Disclosure
Don’t hold back on any debts, income sources, or assets. Your LIT will use this information to prepare your Statement of Affairs, which forms the basis for creditor decisions.
3. Base Your Offer on Bankruptcy Comparisons
Work with your LIT to model what your creditors would receive in a bankruptcy including surplus income payments, asset liquidation values, and administrative costs. Your proposal should at least match or ideally exceed that amount.
4. Tailor the Payment Term to Your Budget
Don’t stretch your budget too thin. Instead, present a realistic, consistent monthly payment amount. A stable payment plan over 48 or 60 months is often more attractive than an ambitious but unstable short-term plan.
5. Be Responsive and Cooperative
Creditors often request clarification or additional documentation during the 45-day voting period. Respond quickly and thoroughly, delays can lead to a vote against the proposal.
What Happens if Your Proposal Is Rejected?
A rejected proposal is not the end of your debt relief journey. You still have several options under the Bankruptcy and Insolvency Act and with guidance from your LIT.
1. Renegotiate the Proposal
Your LIT can reach out to the objecting creditors to ask why they rejected the proposal and negotiate revised terms. For example:
- Increasing the monthly payment
- Offering a lump sum instead of monthly payments
- Extending the proposal term from 48 to 60 months
If successful, a new vote can be held.
2. File an Amended Proposal
If the majority of creditors reject your initial proposal during the 45-day voting window, you have 30 days to file an amended proposal. This resets the voting process and gives you a second chance.
3. Apply for a Court-Approved Proposal
In rare situations where the rejection appears unreasonable or arbitrary, your LIT may apply to the BC Supreme Court under section 66.37 of the BIA, asking the court to approve the proposal despite creditor objections. This is uncommon but possible.
4. Bankruptcy as a Last Resort
If renegotiation fails and no amended proposal is filed, you are automatically deemed to have filed an assignment in bankruptcy. This is why working closely with your LIT is so important to avoid that outcome where possible.
In BC, a bankruptcy may result in additional obligations such as surrendering non-exempt assets, monthly surplus income payments, and extended discharge periods depending on your income and prior filings.
Getting Help With Your Debt Today
Navigating the consumer proposal process in BC can be daunting but you don’t have to do it alone. At C.E. Craig & Associates Inc., our Licensed Insolvency Trustees are here to help you assess your options and create a proposal that works for you and your creditors.
Whether you’re facing creditor pressure, garnishments, or overwhelming bills, we can help you find a way forward. At C.E. Craig & Associates Inc., we regularly work with local and national creditors and understand what they need to say “yes.”
