Is A Division 1 Proposal Right For You?

Division 1 Proposal: Is it The Right Debt Relief Solution?

Are you grappling with your financial liabilities? Do you frequently find yourself in a tangle with creditors demanding their dues? You’re not alone in this struggle. A staggering 53% of Canadian households are merely a few hundred dollars away from insolvency. However, there are several debt solutions at your disposal other than declaring bankruptcy. If you’re weighed down by personal or business-related debt, a Division 1 Proposal could be the lifeline you need.

Understanding Division 1 Proposal

A Division 1 Proposal is essentially an agreement you propose to your creditors, outlining a feasible plan to repay your debt. It’s a strategic approach to settling your liabilities, applicable to individuals and businesses, irrespective of the amount owed. This proposal primarily covers unsecured debts such as credit card dues, payday loans, student loans, and utility bills. It’s a formal procedure administered under the Bankruptcy and Insolvency Act, executed by a Licensed Insolvency Trustee (LIT).

Comparing Consumer Proposal and Division 1 Proposal

Under the Bankruptcy and Insolvency Act, Canadians have access to two types of proposals. The first is the widely adopted Consumer Proposal, also known as Div II Proposal. The second one is the Division I Proposal, sometimes referred to as a corporate or commercial proposal. Both offer alternatives to bankruptcy, often favored by creditors as they stand a higher chance of recovering some part of their money.

When deciding between a Consumer Proposal and Division I Proposal, consider your debt amount and whether you’re filing as an individual or a business. A Consumer Proposal is suitable for debts less than $250,000 (excluding the mortgage on the primary residence) and is filed by an individual. In contrast, a Division I Proposal is applicable for debt exceeding $250,000 (excluding the mortgage on the primary residence) and can be filed by an individual or a business. However, businesses can opt for a Division I Proposal regardless of the debt amount. While a Consumer Proposal can’t exceed five years, there’s no preset time limit for a Division I Proposal.

The Division 1 Proposal Process

1. Consultation with a Licensed Insolvency Trustee

Your journey starts with a meeting with a Licensed Insolvency Trustee (LIT). The LIT will lay out your options and recommend a plan of action to alleviate your financial woes.

2. Filing a Proposal or Notice of Intention

Your LIT will file a Proposal or Notice of Intention (NOI) with the Office of the Superintendent of Bankruptcy (OSB). Upon this filing, you’re relieved from paying your unsecured creditors directly, wage garnishments cease, and any legal actions by creditors are halted. A copy of the NOI will be dispatched to your creditors within five days.

3. Creditors’ Voting

The LIT will arrange a meeting with your unsecured creditors for a vote on accepting or rejecting the proposal. The creditors will be presented with an estimate of their potential recovery if you were to declare bankruptcy versus the offer in the Division 1 Proposal. Acceptance requires majority voters in favor, representing more than two-thirds of the debt owed.

4. Final Decision

If creditors and the Court accept the Division 1 Proposal, you’re obliged to fulfill the proposal conditions while retaining all your assets. Your creditors are bound by the proposal terms. However, rejection of the proposal leads to immediate bankruptcy.

5. Discharge from Debt

Upon meeting all conditions of the proposal, you’re legally released from the included debts. Failure to comply with the conditions will result in bankruptcy.

Division 1 Proposal vs. Bankruptcy: The Differences

Both Division 1 Proposal and Bankruptcy are debt relief solutions providing protection from creditor actions, including cessation of wage garnishments and elimination of unsecured debt. However, bankruptcy requires surrendering your assets to the creditor for debt elimination, while a Division I Proposal enables you to retain your assets.

Advantages of Division 1 Proposal


  • Evades bankruptcy;
  • Retains your assets;
  • Shorter impact on credit rating (R7 credit rating for 3 years post-debt payment, or 6 years from the proposal filing date) compared to bankruptcy (R9 credit rating for 6 years post-discharge or 7 years after filing date);
  • Terms of Division I Proposal remain unchanged, unlike bankruptcy payments that can increase with higher earnings;
  • Debts are paid off at a fraction of their original amounts.


Potential Risks of Division 1 Proposal

If your unsecured creditors vote against your Division 1 Proposal, you automatically enter bankruptcy.

Is a Division 1 Proposal Right for You?

To ascertain your eligibility for a Division 1 Proposal and evaluate if it’s the best option for you, contact Bankruptcy Canada to consult with a Licensed Insolvency Trustee. With locations across Canada and online support, Bankruptcy Canada can assist you in carving out a debt solution that suits your circumstances.

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