Who Qualifies for a Division 1 Proposal?
A Division 1 Proposal is available to two groups:
- Individuals who owe more than $250,000 in unsecured debt (excluding a mortgage on a primary residence)
- Corporations and businesses of any size that need to restructure debt under a court-supervised process
If you owe less than $250,000 in unsecured debt, a Consumer Proposal is a simpler and faster path to the same outcome — legal debt reduction without bankruptcy.
How Does a Division 1 Proposal Differ from a Consumer Proposal?
Both options let you settle debt for less than the full amount you owe, and both are governed by the Bankruptcy and Insolvency Act. The key differences come down to debt size, court involvement, and complexity.
| Consumer Proposal | Division 1 Proposal | |
|---|---|---|
| Debt limit | Up to $250,000 unsecured | Over $250,000 (no upper limit) |
| Court approval | Not required | Required |
| Creditor vote threshold | Majority by dollar value | Majority by number + ⅔ by dollar value |
| Complexity | Moderate | High |
| If rejected by creditors | Deemed bankruptcy | Deemed bankruptcy |
How Does the Process Work?
Here is what the Division 1 Proposal process looks like from your perspective:
- Legal assessment. We review your total unsecured debt, assets, and income to determine whether a Division 1 Proposal is the right path or whether another option better fits your situation.
- Stay of proceedings. Once the formal process begins, an automatic legal stay takes effect. Collection calls stop. Wage garnishments stop. Creditors cannot take further legal action against you.
- Proposal terms are set. A repayment plan is prepared outlining how much you will pay, to whom, and over what period of time.
- Creditors vote. Creditors review the proposal and vote. A majority by number and at least two-thirds by dollar value must approve it for the proposal to pass.
- Court approval. If creditors accept, the proposal goes before a court. The court reviews and confirms that the terms are fair and reasonable.
- Payments begin. You make payments according to the approved plan. Once all payments are complete, any remaining eligible unsecured debt is legally discharged.
If creditors reject the proposal, it is typically deemed a bankruptcy. This is why having qualified legal representation throughout the process matters — a well-structured proposal is far more likely to be accepted.
What Debts Can Be Included?
A Division 1 Proposal addresses unsecured debts — debts that are not backed by collateral. This includes:
- Credit card balances
- Personal loans and unsecured lines of credit
- Income tax debt owed to the CRA
- Business trade debt (supplier balances, vendor invoices)
- Most other unsecured creditors
Secured debts — such as a mortgage or a car loan — are handled separately and are generally not part of the proposal. You can explore how different types of debt interact with relief options in our guide to debt relief options in Canada.
What Are the Benefits?
- No upper debt limit. Unlike a Consumer Proposal, there is no ceiling on how much unsecured debt can be addressed.
- Immediate legal protection. Collections and garnishments stop the moment the formal process begins.
- Bankruptcy is avoided. A Division 1 Proposal is a structured legal alternative to bankruptcy — not a form of it.
- Court oversight works in your favour. If creditors reject a reasonable proposal, the court can review that decision.
- Remaining debt is discharged. Once you complete the payment terms, remaining eligible debt is legally erased.
Why Work with a Debt Law Firm?
A Division 1 Proposal is one of the most complex legal debt processes available in Canada. If the proposal is rejected, the consequences are serious. Having legal representation means someone with a full understanding of the Bankruptcy and Insolvency Act is structuring your case, advocating for your interests, and ensuring the proposal is positioned to succeed.
Unlike a Licensed Insolvency Trustee — who administers the formal insolvency proceedings impartially — we work exclusively for you. Our legal duty runs to our clients alone. You can read more about how that distinction affects your outcome in our comparison of a Licensed Insolvency Trustee vs. a debt lawyer.
See what our Division 1 Proposal legal services include and how we represent you throughout the process.
Carrying More Than $250,000 in Unsecured Debt?
You have legal options — and you don’t have to figure them out alone. Book a free, confidential consultation with our team. We’ll walk you through the process and help you understand exactly where you stand.
Frequently Asked Questions
What is the difference between a Division 1 Proposal and a Consumer Proposal?
A Consumer Proposal is for individuals with up to $250,000 in unsecured debt and does not require court approval. A Division 1 Proposal applies to individuals or businesses with more than $250,000 in unsecured debt and requires a court to approve the final terms. Division 1 Proposals are more complex, involve a higher creditor vote threshold, and take longer to complete.
Does a Division 1 Proposal stop wage garnishment?
Yes. An automatic stay of proceedings takes effect when the formal process begins. This legally stops wage garnishments, collection calls, and most other creditor actions while the proposal is in progress.
How long does a Division 1 Proposal take?
The timeline depends on the complexity of the debt and how quickly creditors respond. The creditor voting and court approval process can take several months. Payment terms under an approved proposal can extend up to five years.
What happens if creditors reject a Division 1 Proposal?
If creditors vote to reject the proposal, the process is typically converted to a bankruptcy. This is why the structure and terms of the proposal matter enormously — and why legal representation throughout the process is important.
Does a Division 1 Proposal affect my credit score?
Yes. A Division 1 Proposal is recorded on your credit report and remains there for a period of time after completion. However, completing a proposal is generally considered a better outcome than bankruptcy, and it gives you a foundation to begin rebuilding your credit.
