October 8, 2025
If debt consolidation is rejected by a bank, there are still many ways to become debt-free. From negotiating with creditors to a consumer proposal or bankruptcy, we look at how to handle this situation.
Debt consolidation can seem like the ideal solution when you're struggling with multiple debts—by combining them into one manageable monthly payment, you may be able to simplify repayment and even reduce your interest costs.
But what happens when your bank denies your application?
It’s a frustrating experience, but a rejection doesn’t mean you’re out of options. It can sometimes be a blessing in disguise. While it can feel like a hopeless situation to be rejected by your bank, there are other debt relief options that could offer solutions more suited to your situation to help you become completely debt-free.
Getting debt consolidation requires you to meet certain requirements with your bank. They may reject your application for one reason, or a combination of them. Here are some common reasons people are turned down after applying for debt consolidation.
If you’ve been turned down for debt consolidation it can feel like you’ll never find a resolution for your debt but that’s not the case. Getting turned just means you’ll have to take a new approach to tacking your debt. This often means finding one that will help you become debt-free. Here’s the options available to you.
Once you’ve been turned down by your bank for debt consolidation, it may be time to negotiate with your creditors directly. This will allow you to find out if you can come to a resolution between you that you can actually afford.
If you are doing this it is important to get whatever you agree to in writing to ensure you understand all the terms and conditions.
Your creditors may offer you one of the following options:
A lump-sum payment involves eliminating the entire debt through a single, agreed-upon payment, which results in the forgiveness of the remaining debt. This approach offers a swift resolution to debt while allowing for the removal of any unaffordable outstanding amounts.
Essentially if you have $1,000 in debt, your creditor may agree to let you pay $850 at once, and they will then write off the remaining $150.
The problem with this is you may not have the necessary funds your creditors wish you to pay.
With a payment plan, your creditors will likely reduce the amount you owe each month in exchange for spreading the payments out over a longer period of time. This allows you to make payments to remove your debt that you can afford, the drawback being that it can be quite some time before you become debt-free.
This is the most complicated option your creditors may offer you. A workout agreement allows for you and your creditor to change the terms of your loan. This can mean lots of things, such as lowering or removing interest payments on your debt. It could also mean restructuring the debt.
This will allow you to become debt-free but again will likely take some time.
Learn the best ways to negotiate your bills with your credit card company.
See how to negotiate your credit card bill hereIf your creditors are unwilling to negotiate, or if you don’t want to negotiate with them yourself, then filing a consumer proposal is an excellent option.
For a consumer proposal, you must work with a Licensed Insolvency Trustee, who negotiates with your creditors on your behalf to lower your debt.
The Licensed Insolvency Trustee will assess your overall financial situation and come up with a plan that allows you to make payments you can afford to your creditors in exchange for having a portion of your debt removed. This may mean an up to 80% reduction in the amount you have to pay back.
Your creditors will vote on this proposal. If the majority of your creditors, representing at least 50% of the total debt value, vote in favour of your proposal, then that decision binds all creditors, even those who vote against it.
Filing a consumer proposal also has other benefits besides reducing the amount you owe:
It’s important to note that a consumer proposal only applies to unsecured debts, like credit card debt, personal loans, or payday loans; secured debts, like car loans or mortgages, can’t be included in a consumer proposal aren’t covered.
A consumer proposal can last up to five years, but there is another option which can help you become debt-free much quicker.
Bankruptcy might sound daunting, especially with common fears about losing possessions. However, it’s actually a structured, supportive way to clear unmanageable debt and achieve a fresh start financially.
The process begins with meeting a Licensed Insolvency Trustee who will evaluate your situation and file the necessary paperwork to start the process. You must work with a Trustee to file for bankruptcy.
Importantly, when filing for bankruptcy, you don’t lose everything. Each province has exemptions for things that cannot be taken from you as part of bankruptcy. These often include you to keep essentials like a modest car, household goods, and tools you need for work. These exemptions vary by province.
A Licensed Insolvency Trustee can help you better understand what things you can keep based on the province you live in.
Like a consumer proposal, bankruptcy also issues a "stay of proceedings," which stops collection calls, wage garnishments, and any legal actions from creditors. You’ll be required to attend two credit counselling sessions, which are designed to help you avoid bankruptcy again in the future.
A first bankruptcy lasts between nine and 21 months, meaning you'll be debt-free much faster than a consumer proposal.
As long as you fulfill all the requirements of the bankruptcy court, you will be declared debt-free at the end of that period of time.
Bankruptcy, while a serious step, can be a path to debt relief, stability, and the fresh start you need.
We understand that debt can feel overwhelming, but you don’t have to face it alone. Our Licensed Insolvency Trustees are here to help you explore your options with a compassionate, judgment-free approach.
Your first consultation with us is completely free, giving you a chance to understand your options without any pressure or commitment. During this meeting, our Trustees will review your financial situation, listen to your concerns, and provide clear, practical advice on the best path forward. You’ll get personalized, professional support to help you regain control of your finances and move toward a debt-free future.
October 8, 2025
If debt consolidation is rejected by a bank, there are still many ways to become debt-free. From negotiating with creditors to a consumer proposal or bankruptcy, we look at how to handle this situation.
