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Why Did My Consumer Proposal Fail?

a young woman upset that her Consumer Proposal has failed

Consumer Proposals are a lifeline for many Canadians struggling with debt, offering a structured way to regain financial stability.

However, there are situations where a Consumer Proposal doesn't achieve the desired outcome. In this blog post we'll explore some common reasons why a Consumer Proposal could fail.

Inadequate Income

Inadequate income is a fundamental reason why Consumer Proposals can fail. When you propose a consumer proposal, you're essentially offering to pay a portion of your debts over a set period. The Proposal must be reasonable and feasible, which means your income should be sufficient to cover the proposed payments.

If your income falls short, creditors are unlikely to accept the Proposal because it's not in their best interest. This is where the guidance of a Licensed Insolvency Trustee (LIT) is invaluable. They can help you determine a realistic Proposal amount based on your income and expenses.

Failure to Make Payments

Consistency in making payments is vital for the success of a Consumer Proposal. Once your Proposal is accepted, you must stick to the agreed-upon payment plan. Missing payments can lead to severe consequences, including the cancellation of the Proposal, leaving you in a worse financial situation.

If you encounter difficulties making payments, don't hesitate to contact your Trustee to discuss possible solutions or modifications to your Proposal. Often the Trustee can adjust your payment schedule so that smaller payments come out of your bank account more frequently to improve your cash flow situation. There are lots of options you can explore with them.

Unforeseen Financial Emergencies

Life can throw unexpected curveballs, and financial emergencies can disrupt your ability to follow your Consumer Proposal. Whether it's a sudden medical bill, necessary home repairs, or any other unforeseen expense, these can strain your finances.

It's important to have an emergency fund or a contingency plan in place to handle such situations without jeopardizing your Proposal.

I firmly believe the creation and building up of an emergency fund is one of the smartest decisions anyone can make. It will be your safety net in case your financial world goes sideways temporarily.

Changes to Your Financial Situation

Your financial situation can change over time, and sometimes these changes are beyond your control. For example, you might experience a job loss, reduction in income, or increased living expenses.

If your financial circumstances change significantly, it's crucial to inform your Trustee promptly. They can assess whether your Consumer Proposal remains feasible or if modifications are needed to accommodate your new situation. They can even approach your creditors with a revised offer, even a temporary one until your situation improves again. There are lots of options.

Your Creditors Object to Your Offer

Creditors get to have a say in the approval of your Consumer Proposal. If 25% or more of your creditors (by dollar value owed) object to the terms of your offer (or demand changes that are unrealistic for you to meet), they could call a Meeting of Creditors and at that meeting, if an agreement is not reached between you and your creditors, your Proposal could fail.

This should underscore the importance of collaborating closely with your Trustee to create a Proposal that is acceptable to both you and your creditors. Your Trustee can guide you through the negotiation process and help you reach a compromise that is realistic for you and your creditors.

It’s always best to avoid a Meeting of Creditors anyhow – it’s an extra level of stress for you that you do not need at this difficult time.

A Lack of Understanding

Consumer Proposals involve complex legal and financial matters. Failing to fully understand the terms, requirements, and obligations of a Proposal can lead to mistakes that result in its failure.

To avoid any misunderstanding, take the time to thoroughly review and comprehend every aspect of your Proposal. Clear communication and a complete understanding of your obligations are crucial for success.

Unsure of something? Ask lots of questions. Ensure you fully understand your responsibilities and rights before the Proposal is filed.

Failure to Seek Out Professional Guidance

Attempting to navigate the Consumer Proposal process without professional guidance can be risky, and in Canada it is actually impossible to file a Proposal without a Licensed Insolvency Trustee. LITs are experts in debt management and can provide invaluable advice and assistance throughout the process.

They can assess your financial situation, help you create a realistic Proposal, negotiate with creditors on your behalf, and ensure that you and your creditors fulfill all legal requirements. Trusting their expertise can greatly increase the chances of you having a successful Consumer Proposal.

Choosing the Wrong Debt Solution

Consumer Proposals are just one of several debt relief options available in Canada. Depending on your specific financial situation, another solution, such as Bankruptcy or a Debt Consolidation agreement (without the need to use the services of a LIT), might be more appropriate.

Failing to explore all available options and choosing the wrong debt solution can lead to financial setbacks. Licensed Insolvency Trustees are required under the Bankruptcy & Insolvency Act (the BIA) to explain all your options to you before you decide on how to proceed. Don't sign any paperwork until they do so.

And once again: Ask lots of questions. Especially if English is not your native tongue. If necessary, take a family member or trusted friend with you to any meetings so they can help translate for you. Understanding the process is the key to its success.

A Combination of Factors Can Lead to Failure

While Consumer Proposals can be an effective way to manage and reduce debt, a number of factors can lead to their failure. It's essential you assess your financial situation carefully, seek professional guidance, and maintain open and clear communication with your LIT throughout the entire filing process.

Remember: Everyone’s financial situation is unique, and what works for one person may not work for another. If you're considering a Consumer Proposal (or facing difficulties with an existing one), consult with a Licensed Insolvency Trustee to explore your options and make the correct, informed, decisions.

Good luck!


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