Division I Proposals
Although there is a range of debt solutions available, consumers in Canada aren’t always aware of them.
While there is a growing number of people using consumer proposals to resolve their debt issues, a relatively small number of people consider using a Division I proposal to achieve the same results.
With so many myths and misconceptions surrounding debt and debt relief, it’s not surprising that so many people are unaware of how effective insolvency proceedings can be at resolving financial problems.
If you’re wondering, ‘what is a Division I proposal?’, or ‘Am I eligible to make a Division I proposal?’, there’s no need to worry.
This handy guide will tell you how a Division I proposal differs from a consumer proposal and what it could mean for your financial situation.
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What’s the Difference Between a Consumer Proposal and a Division I Proposal?
To understand the differences between them, however, it’s important to know exactly what a consumer proposal is in and how they work.
Essentially, a consumer proposal allows individuals to reduce the total amount of unsecured debt they owe by a significant amount.
Technically known as a division II proposal, it’s often possible to slash your overall debt by 75% using a consumer proposal.
Due to this, there is a considerable benefit to using this form of debt relief.
In addition to this, a consumer proposal allows you to make repayments towards the smaller amount you owe on a monthly basis over a maximum period of five years.
During this time, you may have to fulfil some additional obligations, such as attending credit counselling sessions.
Providing you fulfil your duties and make the pre-agreed repayments; however, the remainder of your debts will be permanently eliminated upon completion of your consumer proposal.
Crucially, consumer proposals can only be used by individuals who have less than $250,000 total debt (excluding a mortgage on your home) and this is where the first major difference comes in.
Division I proposals can be made by individuals who owe more than $250,000 in total and by business corporations.
If you’re an individual, you won’t be able to make a consumer proposal if your total debts exceed $250,000 but you could be eligible to make a division I proposal.
What is a Division I Proposal?
If your overall debts amount to more than $250,000 a division I proposal can be used as a form of debt resolution.
Often used to avoid having to file for bankruptcy, a division I proposal will reduce the amount you owe and have far less of a negative impact on your credit score than filing for bankruptcy would.
A division I proposal is fairly straightforward to make but you will need assistance from a licensed insolvency trustee (LIT).
Initially, you will meet with a LIT to discuss your financial situation and explore the viable options.
As well as explaining how a division I proposal works in detail, your LIT will also provide information regarding alternative forms of debt resolution.
Once you’ve got all the information you need, you’ll be able to make a firm decision about how best to manage your debts.
If you decide to move forward with a division I proposal, you will need to provide your licensed insolvency trustee with a range of information, including the names and addresses of your creditors and the amount you owe to each one.
Your licensed insolvency trustee will prepare the formal documentation that’s required in a division I proposal and ask you to review it.
If you’re happy with the contents, you’ll need to sign the relevant paperwork before it is filed with the Office of the Superintendent for Bankruptcy.
Your LIT will also need to schedule a meeting of creditors with the OSB no later than 21 days after your proposal is filed.
This will give your creditors an opportunity to review your proposal and discuss it in further detail.
Having received the relevant documentation and attended the meeting, creditors will be given the opportunity to vote on whether or not they accept your proposal.
Creditors can also vote by proxy or via a voting letter if they are unable or unwilling to attend in person.
If the majority of creditors accept your proposal, then it becomes binding on the remaining creditors.
Similarly, if creditors who are owed more than two-thirds of your overall debt accept your proposal, it becomes binding on all creditors.
If enough creditors reject your proposal, then the division I proposal cannot move forward, and you are automatically declared bankrupt.
In reality, however, the meeting of creditors can be used as an avenue for negotiation.
If multiple creditors indicate that they will not accept your proposal as it is, you will have the chance to make changes in order to secure their acceptance.
Getting Your Division I Proposal Approved
Even when your creditors have accepted your division I proposal, it still needs to be approved by the Bankruptcy Court.
Your licensed insolvency trustee will schedule a hearing so that the court can review the contents of your proposal.
This enables the courts to ensure that the proposal is in accordance with the Bankruptcy and Insolvency Act and that it is fair to all parties.
Once your division I proposal is approved by the court, you must begin fulfilling your obligations under the terms of the proposal.
This may include attending credit counselling sessions, for example, and paying a fixed amount every month.
Providing you complete all of your obligations; you will be issued with a Certificate of Full Performance.
This confirms that the division I proposal is complete and means that the remainder of your debts are eliminated.
However, failure to complete your obligations results in the proposal being annulled and your debts will remain in full.
Due to this, it’s vital you understand the duties placed upon you.
If you think you will be unable to fulfil your obligations for any reason, it’s essential you contact your licensed insolvency trustee straight away.
What Happens Next?
When your Certificate of Full Performance is issued, your licensed insolvency trustee will send a copy to the Office of the Superintendent for Bankruptcy.
From here, the two main credit bureaus in Canada are notified.
This means your credit file can be updated accordingly.
While your division I proposal is on-going, you will usually have an R9 rating on your credit report.
Upon completion, however, this is generally upgraded to R7 for a period of at least three years.
During this time, you may wish to rebuild your credit rating by applying for credit and using it sensibly.
This will ensure that your credit score continues to improve and means you can enhance your credit rating once the three-year period is over.
What are the Benefits of a Division I Proposal?
For many people, the major benefit associated with consumer proposals and division I proposals is the option to avoid being declared bankrupt.
If you file for bankruptcy, your credit rating is usually stuck at R9 for a period of 7 years, which means it will take much longer to repair the damage.
In addition to this, being declared bankrupt limits your eligibility to run a business or be appointed as a company director.
Furthermore, when you file for bankruptcy, many of your assets are effectively transferred to your licensed insolvency trustee and may be seized so that your creditors can obtain some or all of the funds they are owed.
In contrast, a consumer proposal or a Division I proposal has less impact on your credit rating, allows you to keep your assets and has fewer limitations in terms of what jobs you are eligible or able to obtain.
While you will need to continue making regular payments for a maximum period of five years under a division I proposal, you can avoid the surplus income regulations which are applied during bankruptcy proceedings.
With so many benefits associated with division I proposals and consumer proposals, particularly in contrast to bankruptcy, it’s easy to see why so many Canadians are choosing to resolve their debt problems in this way.
Contact Bankruptcy Canada Today
If you’re struggling to pay your bills or manage your debts, it’s important to seek help.
Financial worries can have a major impact on the quality of your life, but there’s no need to try and deal with them alone.
At Bankruptcy Canada, we’ve helped more than 200,000 people overcome debt problems since 1999 and we’re on hand to assist you too.
If you’d like to find out more from a licensed insolvency trustee, why not get in touch with us today?
We’re available 24 hours a day, 7 days a week, so it’s always a good time to talk to someone in confidence.
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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