DIVISION 1 PROPOSAL IN ONTARIO

Division I Proposal in Ontario - Understanding Your Debt Repayment Options

If your debts, not counting the mortgage on your principal residence, exceed $250,000 and you can't see a way to repay them, consider a Division I Proposal. If accepted and approved, it can help you negotiate a repayment arrangement with your unsecured creditors, avoid bankruptcy, and begin rebuilding your financial future.

A Division I proposal is different from a standard consumer proposal because it permits individuals and sole proprietors to negotiate much larger debt amounts. Under a standard Consumer Proposal, the maximum debt ceiling is $250,000. There is no ceiling for a Division 1 Proposal.

At Brief & Associates Inc., we’ve helped over 10,000 Ontarians become debt-free. We’ll review your finances, explain the risks, and help you choose the approach that fits your circumstances.

You don't have to figure everything out on your own. As a Licensed Insolvency Trustee, we offer a free, confidential consultation where you can discuss what you owe, ask questions, and get practical advice without any pressure.

When Your Debt Exceeds the Consumer Proposal Limit

With debt levels at an all-time high in Canada, many turn to consumer proposals as an alternative to personal bankruptcy. They can reduce what you need to repay while letting you keep your assets, as long as you meet your obligations.

Both proposals - the Division 1 Proposal and Consumer Proposal are legal agreements that allow you to repay a portion of your unsecured debts through an arrangement with your creditors. Instead of juggling several payments and rising interest charges, you make fixed payments based on what you can afford with no further interest being charged.

There is one major limitation. A standard Consumer Proposal is available to individuals whose total debts don't exceed $250,000, excluding a mortgage on their principal residence.

If your debts exceed that limit, a Division I Proposal is the next best alternative to bankruptcy.

What Is a Division I Proposal?

A Division I proposal is a formal debt repayment arrangement under Canada's Bankruptcy and Insolvency Act. As already mentioned, unlike Consumer Proposals, it has no maximum debt limit.

It lets eligible individuals and businesses negotiate repayment terms with creditors instead of filing for bankruptcy immediately.

The debt repayment amount depends on your income, available assets, and what your creditors will accept. The goal is to offer an amount that reflects your financial position while providing creditors with an acceptable return.

There is no limit over how many months the payments may be spread, but typically, a proposal payment period is 60 months. This lets you manage what you owe without trying to repay everything at once.

However, there are important risks to consider.

If creditors reject a Division I proposal, or the court refuses to approve it, an individual filing the proposal is deemed bankrupt. That makes it especially important to understand your repayment capacity and the likelihood of creditor acceptance before filing.

Our Licensed Insolvency Trustees can assess your situation and explain whether this option is right for you.

Division I Proposal vs Consumer Proposals - Understanding Your Options

Although both arrangements are designed to help resolve debt, they follow different rules.

The amount you owe is an important starting point, but it doesn't paint the whole picture. Your income, property, business obligations, and ability to make payments also matter and will affect which arrangement works for you.

Notice of Intention: An Optional First Step

If you want more time to assess your finances and prepare a proposal without immediate collection pressure from most unsecured creditors, you can file a Notice of Intention (NOI) with a Licensed Insolvency Trustee to begin the Division 1 process. Generally, filing an NOI will create an automatic stay of proceedings.

An NOI is not the proposal itself. It is a preliminary filing that provides time to prepare for a proposal filing. After filing an NOI, you must normally file the formal proposal within 30 days unless the court grants an extension.

A Division I proposal can also be filed directly, without an NOI, where the debtor and trustee are ready to proceed.

Who would be a good candidate for a Division I proposal?

A Division I proposal may be suitable if you:

• Owe unsecured debts above the standard consumer proposal limit.
• Have income or resources that could support a negotiated repayment arrangement.
• Own a business that needs to restructure its financial obligations.
• Want to consider alternatives to bankruptcy while understanding the risks involved.
• Have assets you hope to retain while addressing outstanding debts.

To see if you’re eligible for Division 1 Proposal contact us today and we'll review your total debts, income, expenses, and assets to establish which formal or informal options are available.

Businesses and Division I Proposals

A corporation cannot file a consumer proposal. When a corporation needs to restructure its debts while continuing operations, a Division I proposal is generally the formal proposal route under the Bankruptcy and Insolvency Act.

A corporate Division I proposal may be appropriate where the business has ongoing value, customers or contracts worth preserving, and a realistic plan to generate enough cash flow to fund the proposal. The proposal usually needs to show creditors why they would receive a better recovery through the proposal than through bankruptcy.

If you are a business owner, your company's expenses and any personal guarantees will be looked at. A Licensed Insolvency Trustee can determine which debts belong to the company or the owner personally, and how the proposed arrangement could affect both.

Are All Types of Debt Included?

With the Division I Proposal, you can typically address credit card balances, unsecured personal loans, lines of credit, payday loans, and income tax and other government debts.

Secured debts work differently.

If you have a mortgage or vehicle loan, the lender generally retains its rights over the property securing that debt. You'll usually need to continue making the required payments if you want to keep the home or vehicle.

Some obligations, including certain support payments and student loans, may receive special treatment under insolvency law.

We can explain which debts may be included and how your secured obligations would be affected before you decide to proceed.

CRA and Tax Debt

Income tax debt, HST, payroll source deductions, and other amounts owed to the Canada Revenue Agency can be included in a Division I proposal. However, the CRA is often a significant creditor in higher-debt files and will likely review the proposal closely.

The CRA may ask for supporting documents or question the proposed payment amount.  They may also request changes to the terms or negotiate before voting. A proposal that includes CRA debt must include accurate numbers, a realistic budget, and a clear plan for keeping up payments.

Filing a proposal does not eliminate the need to stay up to date on future tax obligations. Ongoing source deductions, HST remittances, and current-year income taxes generally need to be paid as they come due.

How the Proposal Process Works with Creditors

Filing a formal proposal involves several steps. After speaking with one of our trustees, you can make an informed decision about the repayment commitment you're considering. At Brief & Associates Inc., we work with you through the whole process, from your initial financial assessment and determining eligibility to implementing an accepted arrangement.

What the Trustee Sends to Creditors

Upon signing the proposal documents and sending them out to your creditors, the creditors will close your credit accounts and no longer contact you about your outstanding debts. Before creditors vote on your proposal offer, the Licensed Insolvency Trustee normally provides them with the proposal terms and supporting information. This generally includes the proposal offer, a statement of assets and liabilities, a list of creditors, proof-of-claim forms and voting instructions.

Creditors generally must submit to the trustee a proof of claim before they can vote. The trustee then calls a creditors’ meeting, where creditors review the proposal and cast their votes.

1. Review Your Financial Situation

We begin with a confidential consultation.

You'll have an opportunity to discuss your creditors, income, household expenses, assets, and outstanding obligations. We'll also ask about the concerns that matter most to you, whether that be collection calls, protecting your home, or managing business debts.

Our job is to explain the available options, including the consequences of each.

2. Develop a Repayment Offer

If a proposal is appropriate, we'll help prepare an offer based on your financial circumstances.

Your creditors will consider whether the arrangement provides a reasonable return compared with other available recovery options.

The proposed payments must also be realistic for you.

Agreeing to an amount you can't maintain can create further financial problems, so we will go through your monthly income and expense budget in detail.

3. File the Division 1 Proposal

Once the documents are prepared, a Licensed Insolvency Trustee files the proposal through the formal insolvency process.

Filing generally creates a legal stay of proceedings that prevents most unsecured creditors from continuing collection activity.

This can stop collection calls, most wage garnishments, and certain legal proceedings involving debts covered by the filing.

There are, however, exceptions, and secured creditors may still exercise their rights. We'll explain how those rules apply to your particular debts.

Sometimes the trustee first files a Notice of Intention. This provides temporary creditor protection while the trustee prepares the proposal.  Then the trustee files the formal proposal promptly, usually within 30 days unless the court extends it.

4. Obtain Creditor Acceptance

Your creditors receive the proposal and have an opportunity to review the repayment offer.

For a Division I proposal, acceptance requires the prescribed majorities of creditors voting at the meeting, including a majority in number and two-thirds in value of the relevant proven claims.

Court approval is also required.

The consequences of rejection are particularly serious because an individual debtor or corporation is deemed bankrupt if the arrangement fails at the creditor approval stage or the court refuses approval.

We'll explain those risks before filing and help you understand what creditors may expect.

If creditors accept the proposal, the trustee applies to the court for approval. Once approved, the proposal becomes binding on the creditors it covers, including eligible creditors that did not vote.

Creditors do not always accept or reject the first offer. In some cases, a creditor may ask for more documentation, a longer payment period, a higher overall payment, or other changes before voting in favor.

5. Meeting Payment Obligations

After creditor approval, and any required court approval, you must follow the agreed-upon terms. You must make payments according to the approved schedule and meet all the proposal’s obligations.

The time given to make payments depends on what creditors will accept.

For a standard consumer proposal, payments cannot extend beyond five years. Division I arrangements have different rules and may allow for other repayment structures.

Keeping up with the required payments is important. Defaulting on a proposal can lead to serious consequences, including possible annulment.

If your financial circumstances change, contact your trustee promptly to discuss what options may be available.

What the Trustee Does During the Proposal

Throughout the proposal, the Licensed Insolvency Trustee administers the arrangement. Some duties include collecting payments and distributing funds to creditors. The trustee also maintains accurate records while reporting to creditors or the court when required. The Trustee also addresses questions that arise during the proposal.

The trustee has a vital role: administering the proposal under the Bankruptcy and Insolvency Act and responding to any issues from the debtor or the creditors while following all rules and regulations. The trustee does not act as the debtor’s personal financial advisor, nor do they advocate for the creditor.

Protecting Your Assets, Credit and Financial Stability

Debt problems affect everyday decisions. You may be concerned about keeping your home, covering family expenses, or what will happen to your credit.

Those concerns deserve careful attention before you enter any formal repayment arrangement.

Can You Keep Your Home and Vehicle?

In many cases, a proposal lets you keep your property while repaying an agreed portion of your unsecured debts.

You generally need to continue making payments on secured obligations, including your mortgage and car loan, to keep the related property.

Your home equity and other assets may also affect the amount creditors expect to receive.

We'll review what you own, what you owe against those assets, and how each available option could affect your property.

What Happens to Your Credit?

Filing a formal debt proposal affects your credit record.

The type of proposal, how long it remains active, and credit bureaus' reporting practices can all influence how long the filing appears on your credit report.

It may become harder to qualify for new borrowing, and lenders may apply different conditions while your credit history reflects the arrangement.

You can begin rebuilding your credit by managing future obligations carefully, monitoring your credit reports, and maintaining consistent payments where appropriate.

We can explain the expected credit consequences before you make a decision.

What Does a Division I Proposal Cost?

The cost of a Division I proposal is generally built into the payments made under the proposal. Trustee fees and costs, government levies, and applicable taxes are typically paid from the funds collected under the arrangement rather than billed separately upfront.

In a Division I proposal, trustee compensation will depend mainly on the work required to administer the file. The proposed fees are disclosed as part of the proposal process and may be reviewed by the Office of the Superintendent of Bankruptcy or the court.

During a consultation, ask the trustee to explain:

• What payments are being proposed
• How long the payments are expected to last
• What portion covers trustee fees, government levies, and taxes
• Whether any additional costs could arise
• What happens if income changes after filing

What if Your Income Changes?

A payment that fits your budget today may become difficult after a job loss, illness, separation, or unexpected expense.

That's why we look beyond the amount of debt you owe.

We look at the whole picture, including your household expenses, stability of your income, and other commitments when discussing repayment options.

Before filing, it's worth considering:

• Whether you can maintain the proposed payments alongside housing and living expenses.
• How changes in employment or business income could affect your budget.
• Whether your mortgage and other secured loan payments remain affordable.
• What assets or savings may be affected by the arrangement.

A realistic proposal should reflect your actual financial circumstances.

If bankruptcy seems more appropriate, we'll explain why, including how Ontario's exemption rules and other insolvency requirements may affect your assets and income.

When Bankruptcy May Be the Better Option

A Division I proposal is not the right solution in every situation. If income is unstable, there are few assets to protect, or the proposed payments would not provide creditors with a better recovery than bankruptcy, bankruptcy may be the more practical option.

Someone who needs a fresh start and cannot realistically maintain a proposal payment could benefit from bankruptcy.  Exemption rules in Ontario may protect certain assets and income, but the availability and value of those exemptions vary by case.

A Licensed Insolvency Trustee should compare both options before filing. The goal isn't to avoid bankruptcy at any cost, but to choose the option that offers the most realistic path forward.

Speak With a Licensed Insolvency Trustee at Brief & Associates Inc.

Struggling with debt and unsure how to pay what you owe? You don't have to make these decisions alone. At Brief & Associates Inc., we've been helping Canadians manage financial difficulties since 1980. Our Licensed Insolvency Trustees are experts who will give you practical advice and debt relief solutions that are aligned with your financial circumstances.

After learning about your options, be it a consumer proposal, a Division I proposal, or filing bankruptcy, we will sit down with you to review all the factors involved in making your decision. You'll learn how each option works, what you may need to repay, and how the process could affect your financial future. As we assess your proposal and consumer debt options, we'll explain the benefits and risks in plain language, without pressuring you into a decision.

With offices in Toronto, Kingston, Brockville, Oshawa, and Cobourg, we're here to help you find a realistic way forward. You can meet with us in person, speak by phone, or arrange a virtual consultation.

If you are ready to take the next step towards managing your debt, please call Brief & Associates Inc. for a no-charge confidential consultation. We'll answer your questions, explain your options, and help you choose an approach that works for your situation.

Book Your Free Consultation with Us Today. Call 1-800-372-7337.

Frequently asked questions

What is the difference between a consumer proposal and a Division 1 proposal?

A consumer proposal is available to eligible individuals with unsecured debts of up to $250,000, excluding a mortgage on their principal residence. A Division 1 proposal has no debt ceiling and may suit individuals with higher debts. Division 1 proposals have stricter timelines and can result in deemed bankruptcy if creditors reject the proposal or the court does not approve it.

Can I file a consumer proposal if I owe over $250,000?

Generally, no. If your debts exceed $250,000, excluding the mortgage on your principal residence, you may need to consider a Division 1 proposal or personal bankruptcy. A Licensed Insolvency Trustee can review your debts, income, property, and repayment capacity.

Will a consumer proposal stop collection calls and wage garnishments?

Once a proposal is filed, a stay of proceedings generally stops unsecured creditor collection activity, including collection calls, wage garnishments, and most lawsuits. Secured creditors, such as mortgage lenders and car loan providers, retain their rights if you don't keep up payments.

Will I be able to keep my house and car in a Division 1 Proposal?

In most cases, yes. A Division 1 proposal can allow you to keep assets, provided you continue making payments on secured debts such as your mortgage or car loan. Your trustee can review your home equity, loan balances, and proposal terms before filing.

When creditors reject a Division 1 proposal, then what?

If creditors reject a Division 1 proposal, the individual or corporation is deemed bankrupt. The same risk can arise if the court refuses the approval. This shows the importance of carefully assessing creditor expectations and affordable payment terms before filing.

How do creditors approve a Division 1 Proposal?

Creditors receive the proposal and may vote on it. Acceptance depends on a majority of voting creditors by number, holding two-thirds of the total dollar value of the voting creditors. When accepted, the proposal is binding for all unsecured creditors included in the filing, including creditors that did not vote.

How does a Division 1 Proposal affect my credit?

A Division 1 proposal affects your credit record, but it can also be an excellent way to resolve debt without bankruptcy. You can recover your credit over time by completing the proposal, keeping future accounts in good standing, and rebuilding your savings.

Do I need a Licensed Insolvency Trustee to file a proposal in Ontario?

Yes. Only a Licensed Insolvency Trustee can file and administer a consumer proposal or Division 1 proposal under the Bankruptcy and Insolvency Act. A trustee can also explain alternatives such as budgeting, consolidation, direct creditor arrangements, or bankruptcy.

What is a Notice of Intention in a Division I proposal?

A Notice of Intention is an optional preliminary filing that can provide immediate creditor protection while a person or business prepares a Division I proposal. After filing an NOI, the formal proposal must normally be filed within 30 days, unless the court grants an extension.

Can a corporation file a consumer proposal?

No. A corporation cannot file a consumer proposal. A corporation that wants to make a formal proposal to creditors files a Division I proposal under the Bankruptcy and Insolvency Act.

Will the CRA accept a Division I proposal?

The CRA can accept or reject a proposal; depending on the circumstances, the parties can also negotiate. The CRA often reviews all the debtor’s financial matters - tax filings, income, assets, budget, and the proposed return to creditors. Accurate documentation and realistic payment terms are especially important when the CRA is a major creditor.

Do creditors have to accept the first Division I proposal?

No, they do not. Like the CRA’s options, creditors may reject or vote against the proposal; they may also request more information or different terms. In some cases, the proposal can be revised and resubmitted, but the debtor should understand the risks before filing.

What if I miss payments in a Division I proposal?

Missing payments on the proposal is very unwise because in some circumstances, the proposal may be annulled, or the debtor may face bankruptcy. If income changes or a payment becomes difficult, contact the trustee promptly to discuss the situation.

How much does a Division I proposal cost?

The cost is generally included in the proposal payments. Trustee fees, government levies, and applicable taxes are usually paid from the funds collected under the proposal. The trustee should explain the proposed payments and how those funds will be allocated before filing.

Will a Division I proposal stop collection calls and wage garnishments?

Filing a Division I proposal creates a stay of proceedings that stops most unsecured creditor collection activity, including collection calls, wage garnishments, and many lawsuits. There are exceptions, and secured creditors may retain certain rights.

Will I be able to keep my business if I file a Division I proposal?

Possibly. A Division I proposal is often used when a business has ongoing value and a realistic plan to continue operating. Whether the business can continue depends on its cash flow, debts, secured lenders, contracts, assets, and the terms accepted by creditors.