What is the Difference Between a Consumer Proposal and a Division I Proposal?
It’s important to be aware that when you speak to an Insolvency Trustee under the Bankruptcy Insolvency Act they have the option of providing two different types of proposals.
Most people aren’t aware that both a Consumer Proposal and a Division I Proposal are both possibilities.
Let’s explore what this means.
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Consumer Proposals And Division I Proposals Explained
If an individual has debts that do not exceed $250,000, then they may be able to gain a consumer proposal.
It’s worth noting that when a consumer proposal is filed various details will be checked including the level of assets and the level of debt as well as the earnings.
This is to ensure that the trustee reaches an amount that creditors are going to accept.
Usually, this will only be a percentage of what you owe rather than a full amount.
A single monthly payment will be sent to the insolvency trustee and they will ensure that all the creditors receive the appropriate amount.
A consumer proposal is an option that is only available to an individual.
There is also no interest increasing through the consumer proposal and absolutely no additional costs to pay for the involvement of the trustee.
Conversely a Division I Proposal is available to both businesses as well as individuals.
There is also no limit on how much money can be owed.
However, in this case it must be over $250,000.
Again, an offer is made with the support of insolvency trustees and a percentage of what is owed will be paid back over a set period.
As well as this, just like in the case of a consumer proposal, all the payments are made through the trustee.
Is This A Better Option Than Bankruptcy?
Both types of proposals will be a better alternative to bankruptcy because you will be able to maintain all your assets.
This won’t be the case if you file for bankruptcy and most of your assets will need to be sold off.
Similar to bankruptcy, all actions against you including wage garnishments and collection processes stop.
The settlement also won’t change once it has been agreed upon, even if you are able to increase your income or you suddenly inherit a massive sum of money.
Comparing The Two Options
When compared, there are clear differences between the two types of proposals.
The first is the amount of debt.
A consumer proposal is only available to those with less than $250,000 while a Division I Proposal means that there must be more than $250,000 in debt.
Similarly, the Consumer Proposal is exclusive to individuals whereas Division I Proposals are also available to businesses.
Both provide protection from action which is put in place immediately and creditors are notified within 5 business days.
However there are further differences. In the case of a Consumer Proposal creditors will have 45 days to vote for or against the offer.
They can also put forward a counteroffer that they feel is more acceptable.
If the majority of creditors accept the proposal, it gains full court approval no more than 15 days later.
In the case of a Division I Proposal the trustee will set up a meeting of creditors.
This will be held 21 days after filing the proposal.
During the meeting, the creditors will be presented with a statement of financial affairs.
The creditors are then required to vote to either reject or approve the proposal.
In both cases creditors are provided with an accurate estimate of what they would receive in the case of bankruptcy.
Due to this, it is important that the deal on the table provides more benefits than bankruptcy.
If it is significantly less or more or less the same as a bankruptcy claim they are far less likely to accept the proposal.
If the proposal is rejected then there are differences depending on which proposal is used.
In the case of a Consumer Proposal a debtor can file for bankruptcy.
Or, they may enter informal agreements with creditors directly to settle the issue.
In the case of a Division I Proposal a rejection will automatically mean that the individual or business is bankrupt.
Consumer proposals also require the debtor to attend 2 counseling sessions during the process.
This is not an issue with a Division I Proposal and there are no monthly income statements required in either case once the proposals have been filed.
How Long Do They Take?
This will differ for each debtor however a consumer proposal will usually take between one and five years.
It’s often recommended and advised that you attempt to pay the proposal earlier to clear your debts.
In the case of a Division I Proposal, most will take five years.
However, lengths can vary and will typically depend on the amount of debt.
It is still recommended that you do try and pay it off earlier where possible.
When Can Protection Be Lifted?
In the case of a consumer proposal, protection can be lifted if the debtor misses more than three payments.
This also causes the proposal to be annulled and creditors can then continue to pursue legal action.
In the case of a Division I Proposal protection is lifted in the case that the proposal is in default.
Regardless of which proposal you use, it is always advised that you do pay it off earlier where possible.
You can then work to improve your credit rating and ensure that you get your finances back on track.
If you are interested in learning more about the options or you are already dealing with insurmountable levels of debt then our team can help.
Contact us today or fill out an evaluation form and a friendly expert will advise you on the right steps to take to escape your debt.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal