What are the reasons for a consumer proposal denial?

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When building a consumer proposal, ensure it’s realistic and transparent. Avoid making creditors feel shortchanged compared to a bankruptcy option. Stick to guidelines, include all unsecured creditors, and avoid re-proposing too soon. Collaborate with a licensed insolvency trustee to enhance approval chances.

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Question

Why would a consumer proposal be denied? I want to know the reasons why a consumer proposal might get turned down. Understanding these factors would help me prepare better before I apply. What should I watch out for?

From: Anonymous Question, New Brunswick (NB)

Debt Insiders Answer

A consumer proposal might hit a snag for a few reasons, mainly involving how realistic the plan is and the debtor’s financial health. If the repayment plan doesn’t meet basic standards or shortchanges creditors compared to a bankruptcy scenario, they might just turn it down. And if you’re still racking up debt or not sharing the full picture of your finances during the process, that’s another red flag. Creditors might vote against it if they think the payback offer doesn’t stack up well with what you could potentially afford based on your assets and income.

Now, here’s the biggie: your proposal has to follow the rules set by the Office of the Superintendent of Bankruptcy Canada. Common sticking points include forgetting a few unsecured creditors or trying to submit a proposal again too soon after financial hiccups like previous bankruptcies. Fudging financial details or having sketchy paperwork can also tip the balance against you. To boost your chances of getting the green light, team up with a licensed insolvency trustee to craft a proposal that’s both achievable and on point with legal guidelines.

From: Anonymous Question

Office of the Superintendent of Bankruptcy (OSB) Answer

A consumer proposal may be denied for several reasons:

1. Insufficient Debtor Consent: If the proposal does not receive consent from the majority of creditors (creditors who hold at least 50% of the total debts in value), it may be rejected. This is governed under the Bankruptcy and Insolvency Act, RSC 1985, c 11, sections 66.4 and 66.5.

2. Failure to Meet Legislative Criteria: The proposal must comply with the requirements set out in the Act, including clear and realistic terms for repayment. If it does not meet these criteria, it may be disallowed.

3. Financial Viability: If the proposal is deemed not to be financially feasible based on the debtor’s income and expenses, it can be rejected. The administrator (trustee) must assess whether the proposed plan is realistic and achievable under section 66.3 of the Bankruptcy and Insolvency Act.

4. Non-disclosure of Relevant Information: If a debtor fails to disclose accurate financial information or relevant assets that could affect the proposal’s terms, this may lead to denial according to the regulations set forth under the Act, specifically regarding debtor responsibilities.

5. Lack of Good Faith: The court or the trustee may perceive a lack of good faith in the proposal which can result in rejection. This is typically evaluated on a case-by-case basis.

6. Timing of Proposal Submission: If a consumer proposal is made after previous bankruptcy filings or proposals within a certain timeframe, it may be denied based on previous conduct under section 66.11 of the Act concerning repeat filings.

7. Trustee Discretion: The appointed trustee has the discretion to propose modifications or reject the plan if it doesn’t conform to requirements outlined in all applicable regulations and acts, especially if the creditors are likely dissatisfied with the proposal terms.

Monitoring these areas can help in preparing an effective consumer proposal.

From: This answer is provided by scanning the OSB Bankruptcy & Insolvency Act and related directives

Related Questions

Here are the top 5 most frequently asked questions related to why a consumer proposal might be denied, based on the provided sources and general online trends:

1. What are the common reasons for a consumer proposal to be rejected?

• A consumer proposal can be rejected if the payment offer is too low, the offer does not align with creditor expectations, there are questions about income stability, or if the proposal does not meet minimum recovery rates[3][5].

2. How do creditors vote on a consumer proposal, and what is the threshold for acceptance?

• Creditors must vote in favor of the proposal, with acceptance requiring more than 50% of the total debt represented by the voting creditors to approve it[2][3].

3. What happens if my creditors reject my consumer proposal?

• If your creditors reject your proposal, you can renegotiate the terms, accept any counter-offer, withdraw the proposal and file for bankruptcy, or pursue other debt relief options[3][5].

4. Can I withdraw my consumer proposal if it is rejected or before it is voted on?

• Yes, you can withdraw your consumer proposal at any time prior to the deemed rejection or at the meeting of creditors[2][3].

5. How does a rejected consumer proposal affect my credit report?

• A rejected consumer proposal will remain on your credit report for six years from the date of filing, regardless of the outcome[3][5].

If you have a question about debt see our debt questions or ask your own debt related question.

References

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