Under the Bankruptcy and Insolvency Act there are two different types of proposals that a Licensed Insolvency Trustee can help you to file. The Consumer Proposal, also known as a Division II Proposal, is the more common option – read on to learn about the other type, a Division I Proposal.

If you're facing overwhelming debt and struggling to meet your financial obligations, a Division I Proposal can be a valuable tool to help you regain control of your finances. A Division I Proposal is a formal, legal process available under the Bankruptcy and Insolvency Act (BIA). It is designed to assist individuals and businesses who owe large sums of money and need a structured plan to repay their debts.

A Division I Proposal is available to individuals who don’t qualify to file a Consumer Proposal because their debts are too high – the cut-off for a Consumer Proposal is $250,000.00 total debt, not including a mortgage on a principal residence. There is no upper debt limit for a Division I Proposal, and while you can file one if your debt is under $250,000.00, a Consumer Proposal usually makes more economic sense in these situations.

Division I Proposal vs Consumer Proposal

While the initial process is quite similar to a Consumer Proposal from the point of view of the individual filing it, there are some key differences:

• A meeting of creditors to approve the proposal is mandatory for a Division I Proposal, while only some Consumer Proposals have these meetings - if enough creditors request a meeting be held.
• As the approval process is different, Division I Proposals usually take longer to be approved than Consumer Proposals. Division I Proposals must be approved by the creditors first and then by the Court. For a Division I Proposal to be accepted by creditors, the majority (in attendance at the meeting or by proxy) must vote in favour, and the acceptance votes must also represent at least two-thirds of the value of the debt.
• Division I Proposal payment schedules can be longer than the maximum of 60 months allowed in Consumer Proposals if this makes the most sense for your situation.
• Financial counselling sessions for individuals are not required in a Division I Proposal.
• The biggest difference to consider is that if a Division I Proposal is rejected at the meeting of creditors, there is an automatic bankruptcy – the individual is ‘deemed to have filed’ a bankruptcy on the day that the Proposal is officially rejected.

Like a Consumer Proposal, once accepted all creditors are legally bound by the proposal – not just the ones who voted in favour.

Stay of Proceedings & Filing a ‘Notice of Intention to Make a Proposal’ (NOI)

Often creditor may have taken action that may curtail the use of your bank account or reduced your income so you have no ability to pay your ongoing commitments. In a Division I Proposal, filing an NOI will place an immediate stay of proceedings on any further action by your creditors. This will allow for time to prepare a proposal, which must be filed within 30 days of the NOI unless this time is extended by the Court.

Benefits and Risks of Filing a Division I Proposal

• If accepted, avoids bankruptcy and protects your assets
• Can deal with larger amounts of debt than a Consumer Proposal
• Once approved, payments are fixed and easier to budget for, compared with paying your creditors individually
• Protection from legal action like wage and bank account garnishments
• If the Proposal is rejected, you are automatically in bankruptcy

Just like in a Consumer Proposal, payments in a Division I Proposal are made to the LIT to distribute to the creditors. The payments can be periodic (usually monthly), or involve a lump sum, or a combination.

The Proposal will set out the terms of default, and usually provide for a way to cure a default if one occurs. While filing the Proposal puts the stay of proceedings (halt to legal action by your creditors) in place, it is the completion of the Proposal than releases the debts.