Are you struggling to pay off your debt?
Do you feel overwhelmed by creditors constantly asking you for money?
With over half of Canadian households reporting to be $200 or less away from insolvency, you are not alone. If you find yourself in a tough financial spot, there are debt solutions available to you other than Bankruptcy. Depending on your level of personal or business-related debt, a Division I Proposal might be the right option for you.
What is a Division I Proposal?
A Division I is a proposal made to your creditors in an attempt to negotiate how you will repay your debt. It is essentially the process of settling your debts with your creditors.
This proposal is available to individuals and businesses and there is no limit to how much money is owed. The proposal specifically covers unsecured debts such as debts from credit cards, payday loans, student loans or utility bills. The Division I Proposal is a procedure that is governed by the Bankruptcy and Insolvency Act and the process is carried out by a Licensed Insolvency Trustee (LIT).
Consumer Proposal vs. Division I Proposal
There are two types of proposals available to Canadians under the Bankruptcy and Insolvency Act. The first, and more popular option, is a Consumer Proposal, or Div II proposal. The second option is the Division I Proposal, sometimes called a commercial or corporate proposal.
Both proposals offer an alternative option to filing for Bankruptcy. Creditors are often willing to negotiate a proposal because they are more likely to get some of their money back as opposed to Bankruptcy where they are less likely to receive anything.
When trying to determine whether a Consumer Proposal or Division I Proposal is right for you, consider the amount of debt you have and whether you are filing for yourself or your business.
A Consumer Proposal is for debts less than $250,000 (excludes mortgage on primary residence) and is filed by an individual. A Division I Proposal is for debt exceeding $250,0000 (excluding the mortgage on primary residence) and can be filed by an individual or a business.
Note that a business can use a Division I Proposal if they owe any amount of unsecured debt, it does not need to exceed $250,000. The length of time for a Consumer Proposal can not exceed five years. For a Division I Proposal there is no set time limit for how long it can be.
How Does a Division I Proposal Work?
- Meet with a Licensed Insolvency Trustee. The LIT can explain your options and determine a course of action to help you solve your financial problems.
- File Proposal or Notice of Intention. A LIT can file a proposal or notice of intention (NOI) on your behalf to the Office of the Superintendent of Bankruptcy (OSB). Once the notice is submitted, you no longer have to make payments directly to your unsecured creditors, salary garnishments will stop, and any lawsuits against you from the creditors will stop. Within five days a copy of the notice of intention will be sent to all of your creditors.
- Creditors Vote. Your LIT will set up a meeting with the unsecured creditors to vote to accept or reject the proposal. The LIT will provide the creditors with an estimate of the amount of money they would receive if you declared Bankruptcy versus how much they are being offered in the Division I Proposal.
For the vote to be approved, the majority of voters must vote to accept the proposal and the votes of acceptance must represent more than two-thirds of the debt owed.
- A Decision is Made. If the Division I Proposal is accepted by the creditors and the Court, then you are responsible for fulfilling the conditions of the proposal. You will retain all of your assets as long as you pay your creditors. Your creditors are also bound to the terms of the proposal. If the proposal is rejected however , you are immediately declared to be bankrupt.
- Released From Debt. If you are able to meet all of the proposed conditions, you will be legally released from the debts included in the proposal. If you do not meet all of the conditions, you will be placed into Bankruptcy.
What is the Difference Between a Division I Proposal and Bankruptcy?
A Division I Proposal and Bankruptcy are both debt solutions that can be used to resolve your debt situation. Both of these options offer protection from creditor action including the halting of wage garnishments and the elimination of unsecured debt.
However, when you file for Bankruptcy, you give up all of your assets to the creditor in exchange for the elimination of your debt. With a Division I Proposal, you get to keep your assets.
Benefits of filing for Division I Proposal
- Avoid Bankruptcy
- Retention of your assets
- Credit rating is impacted for a shorter period of time (R7 credit rating for 3 years after the debt has been paid or 6 years from the date the proposal was filed) versus filing for Bankruptcy (R9 credit rating for 6 years after discharge date or 7 years after the filing date).
- Once you agree on the terms of your Division I Proposal, they cannot change. For example, if you start to make more money after you file for Bankruptcy, your Bankruptcy payments can increase. This is not the case with a Division I.
- Debts will be paid off at a portion of their original amounts.
Risks associated with filing for a Division I Proposal
If your unsecured creditors vote against your Division I proposal then you will automatically go into Bankruptcy.
Is a Division I Proposal Right for You?
To determine if you qualify for a Division I Proposal and if it is the right option for you, contact Allan Marshall and Associates at 1-(888)-371-8900 to speak with a Licensed Insolvency Trustee. With locations throughout the Maritimes and online support, Allan Marshall and Associates can work with you to find a debt solution that works.