If you’re considering a consumer proposal to deal with overwhelming debt, you’re probably wondering: what if it gets rejected? It’s a fair worry. While the vast majority of consumer proposals in Canada are accepted — over 97% according to industry data — understanding why some proposals fail can help you avoid the same mistakes and get the fresh start you deserve.
A consumer proposal is one of the most practical debt relief options available to Canadians. It lets you negotiate with creditors to repay a portion of what you owe, usually over a period of up to five years. But because creditors have to agree to the terms, there are real reasons a proposal can be turned down. Let’s walk through exactly what those reasons are and what you can do to make sure your proposal goes through.
What Is a Consumer Proposal?
A consumer proposal is a formal, legally binding agreement between you and your creditors, administered by a Licensed Insolvency Trustee (LIT). According to the Office of the Superintendent of Bankruptcy Canada, you can file a consumer proposal if your total debts (excluding your mortgage) are $250,000 or less. Your LIT develops a proposal offering creditors a percentage of what you owe, or more time to pay, or both.
Once your proposal is filed with the OSB, all collection actions against you — including wage garnishments and lawsuits — are legally stopped. Creditors then have 45 days to accept or reject the offer. If no creditor requests a meeting within that window, the proposal is automatically deemed accepted.
The reason consumer proposals have become so popular is that they offer a middle ground: you avoid bankruptcy, keep your assets, and get a structured path out of debt. In recent years, the number of Canadians choosing consumer proposals over bankruptcy has climbed steadily — and for good reason.
Pros of Filing a Consumer Proposal
Cons of Filing a Consumer Proposal
Who Should Consider a Consumer Proposal
- You have between $10,000 and $250,000 in unsecured debt (not counting your mortgage)
- You have a steady income but can’t realistically pay back everything you owe
- You want to avoid bankruptcy and protect assets like your home or car
- You’re being contacted by collection agencies or facing wage garnishment
- You’ve already explored credit counselling or debt consolidation without success
Who Should NOT File a Consumer Proposal
- Your total unsecured debts exceed $250,000 (you’d need a Division I proposal instead)
- You can comfortably afford to repay your debts in full with minor adjustments to your budget
- Most of your debt is secured (mortgages, car loans) — a consumer proposal only covers unsecured debts
- You have no income at all and can’t commit to any monthly payment
- You’re a corporation or business entity — consumer proposals are for individuals only
Top Reasons Consumer Proposals Are Rejected
While rejection is uncommon, it does happen. Here are the main reasons creditors may vote against a proposal:
1. The offer is too low
This is the most common reason. Creditors compare what they’d receive from your proposal against what they’d get if you declared bankruptcy instead. If your proposal doesn’t offer at least as much as a bankruptcy — and ideally more — creditors have little incentive to accept. A good rule of thumb is to offer at least slightly more than the bankruptcy amount to make the deal attractive.
2. Questionable debtor conduct
If you went on a spending spree right before filing, transferred assets to family members, or made preferential payments to certain creditors while ignoring others, those actions raise red flags. Creditors and the court look at your financial behaviour in the months leading up to the proposal. Being honest and transparent about your situation is essential.
3. Incomplete or inaccurate financial disclosure
Your proposal must include a full picture of your income, expenses, assets, and liabilities. If creditors suspect you’re hiding income or assets, they’ll push back. The LIT’s report to creditors needs to be thorough and accurate — missing information can undermine trust.
4. Creditor policies and thresholds
Some large institutional creditors, particularly the CRA (Canada Revenue Agency), have internal policies about the minimum percentage they’ll accept. If a single creditor holds more than 51% of your debt and has strict internal thresholds, their vote alone can determine the outcome. An experienced LIT will know these thresholds and structure your offer accordingly.
5. Failing to meet eligibility requirements
To file a consumer proposal, you must be insolvent (unable to pay debts as they come due), owe no more than $250,000 in unsecured debt (excluding your mortgage), and be an individual — not a corporation. If any of these criteria aren’t met, the proposal won’t proceed.
Financial Example: Proposal vs. Bankruptcy
Understanding why creditors accept or reject proposals often comes down to the numbers. Here’s a simplified example showing why most creditors prefer a consumer proposal:
In this example, creditors receive nearly three times more through the consumer proposal than they would from a bankruptcy — which is exactly why the vast majority of proposals are accepted. Meanwhile, the debtor saves $28,200 compared to repaying the full balance, keeps their assets, and avoids the stigma of bankruptcy. Many Canadians have found this kind of relief through a proposal — you can read some of their consumer proposal success stories here.
Steps to Get Your Consumer Proposal Accepted
- Book a free consultation with a Licensed Insolvency Trustee. An LIT is the only professional licensed by the federal government to file a consumer proposal. During this initial meeting, they’ll review your full financial picture — income, debts, assets, and monthly expenses — and tell you honestly whether a proposal makes sense for your situation.
- Gather complete financial documentation. Pull together recent pay stubs, tax returns, bank statements, a list of all debts and creditors, and details of any assets you own. The more thorough and transparent you are, the stronger your proposal will be.
- Work with your LIT to set the right offer amount. Your LIT knows the minimum thresholds that major creditors expect. They’ll help you calculate an offer that’s realistic for your budget but attractive enough for creditors — typically offering more than what creditors would receive in a bankruptcy.
- File the proposal and let the 45-day clock start. Once your LIT files the proposal with the Office of the Superintendent of Bankruptcy, creditors have 45 days to respond. During this period, all collection actions are paused. If no creditor holding at least 25% of the total debt requests a meeting, the proposal is automatically deemed accepted.
- Attend the meeting of creditors if one is called. If creditors request a meeting, don’t panic. Your LIT will attend with you and negotiate on your behalf. Creditors may propose a counter-offer — for example, slightly higher monthly payments — and you can accept or continue negotiating. Most meetings result in an agreement.
- Complete your payments and attend financial counselling. Once your proposal is accepted, stick to the payment schedule. You’ll also attend two mandatory financial counselling sessions, which give you tools to manage money and avoid future debt problems. When you’ve made all payments, your remaining unsecured debt is legally discharged.
The Bottom Line
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Frequently Asked Questions
How often are consumer proposals rejected in Canada?
Consumer proposal rejection is quite rare. Industry data shows that over 97% of consumer proposals filed in Canada are accepted by creditors. Most proposals don’t even require a formal meeting of creditors — if no creditor holding at least 25% of the proven claims requests a meeting within 45 days, the proposal is automatically deemed accepted. The high acceptance rate is largely because experienced Licensed Insolvency Trustees know how to structure proposals that satisfy creditor expectations while remaining affordable for the debtor.
What happens if my consumer proposal is rejected?
If your consumer proposal is rejected at a meeting of creditors, you still have options. Your Licensed Insolvency Trustee can help you revise the terms — perhaps increasing the monthly payment amount or extending the repayment period — and resubmit the proposal. Creditors may also make a counter-offer during the meeting, which you can choose to accept or negotiate further. If a revised proposal still doesn’t gain approval, you can explore alternatives like credit counselling, debt consolidation, or as a last resort, filing for personal bankruptcy.
Can the CRA (Canada Revenue Agency) reject my consumer proposal?
The CRA participates in consumer proposals just like any other unsecured creditor, and they do vote on whether to accept or reject. However, the CRA is generally willing to accept consumer proposals as long as the offer is reasonable and the debtor has been compliant with filing tax returns. The CRA tends to have internal thresholds for minimum acceptable recovery percentages. If you owe a significant amount in tax debt, your LIT will factor the CRA’s known expectations into your proposal to maximize the chance of acceptance.
How much should I offer creditors in my consumer proposal?
There’s no single magic number, but a general guideline is to offer creditors more than they would receive if you declared bankruptcy. Many proposals settle for 20–50% of the total debt owed, though the exact amount depends on your income, assets, the types of creditors involved, and their internal policies. For example, if creditors would recover $6,000 through your bankruptcy, offering $15,000–$17,000 through a proposal spread over several years is usually attractive enough to gain approval. Your Licensed Insolvency Trustee will calculate the right amount based on your specific situation.
Do I need a lawyer to file a consumer proposal in Canada?
No, you don’t need a lawyer. In Canada, only a Licensed Insolvency Trustee — licensed by the federal government through the Office of the Superintendent of Bankruptcy — can administer a consumer proposal. Your LIT handles all the paperwork, files the proposal, communicates with creditors, and negotiates on your behalf. Be cautious of debt relief companies or consultants who claim to offer consumer proposals but are not licensed trustees — they may charge extra fees and ultimately still need to refer you to an LIT. You can find a licensed trustee through the Government of Canada’s OSB website.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
