Division 1 Proposals in Plain Terms

If someone has told you that a consumer proposal will not work because your debts are too high, you may have heard the phrase Division 1 proposal.

It sounds technical because it is. But the basic idea is not complicated.

A Division 1 proposal is another kind of formal proposal under the Bankruptcy and Insolvency Act. Like a consumer proposal, it is a legally binding offer to your creditors to settle your debts without filing bankruptcy.

One note on spelling before anything else. You may have searched “Division 1” and you may see “Division I” on official forms. They are the same thing. The Act writes it as a roman numeral; everyone else writes it as a number. This page uses both, and they mean exactly the same process.

The difference from a consumer proposal is that a Division 1 proposal is used when a consumer proposal is not available, usually because your debts are over the consumer proposal limit.

It can be a useful option. It can also carry a serious risk. If a Division 1 proposal is rejected by your creditors or refused by the court, bankruptcy will follow automatically. The one exception is someone who is already bankrupt when the proposal is made. In that case there is no second bankruptcy; the existing bankruptcy simply continues.

That is the main reason to understand the process before you file.

The Short Answer

A Division 1 proposal is the proposal process used when a consumer proposal does not fit.

For most individuals, that happens because their debts are more than $250,000, not counting any mortgage debt secured by their principal residence.

A corporation also has to use Division I because a corporation cannot file a consumer proposal.

A Division 1 proposal can still do the same basic job as a consumer proposal. It can stop most collection, allow you to make one structured offer to your unsecured creditors, and settle the debts included in it if the proposal is completed.

But it is more formal than a consumer proposal.

The three biggest differences are:

• creditors must vote on it;
• a creditors’ meeting is required;
• if the proposal is rejected by creditors or refused by the court, bankruptcy follows automatically.

Those three differences are what this page explains.

One more thing worth knowing at the start. Division I proposals filed by individuals are much less common than consumer proposals. Most people who end up here did not choose this route. The size of the debt chose it for them.

Why You Would Need a Division 1 Proposal

A consumer proposal is only available to an individual whose debts are at or below the consumer proposal limit.

The current limit is $250,000, not including debt secured by a principal residence.

So if you own a home with a mortgage, that mortgage is not counted toward the $250,000 limit for this purpose. The Consumer Proposal Resource Centre explains the consumer proposal eligibility rule in more detail.

If your unsecured debts are over the limit, a consumer proposal is not available. A Division I proposal has no debt ceiling, so it becomes the formal proposal option.

This is why most people do not choose Division I over a consumer proposal. Once the debt is above the consumer proposal limit, Division I is the available proposal process.

A company is different. A corporation cannot file a consumer proposal at all. If a corporation wants to make a proposal to its creditors, it must use the Division I process.

Do not confuse that with a sole proprietorship or a partnership. If you operate a small business personally, the business debts may be your own debts.

What Stays the Same

A Division I proposal and a consumer proposal are both formal proposals under the Bankruptcy and Insolvency Act.

In both cases:

• you work with a Licensed Insolvency Trustee;
• the proposal is made to your creditors;
• filing triggers an automatic stay that stops most collection and garnishment;
• creditors are asked to accept less than full payment;
• completion of the proposal releases the debts included in it.

So the goal is similar.

The process is different.

Difference 1: Creditors Must Vote

In a consumer proposal, creditors do not always have to meet or vote.

If no creditor asks for a meeting within 45 days of filing, the law treats the proposal as accepted by the creditors automatically. If no one asks the court to review it, it is treated as approved by the court as well.

In practical terms, a consumer proposal can be accepted because no creditor objected.

A Division I proposal does not work that way.

There is no automatic acceptance by silence.

The creditors must be asked to vote, and the proposal must receive the required level of creditor support.

That makes preparation more important. Before filing, the Licensed Insolvency Trustee will want to understand who the main creditors are, what they are likely to receive, and whether the offer has a realistic chance of passing.

Difference 2: A Creditors’ Meeting Is Required

A Division I proposal requires a meeting of creditors.

The meeting is normally held within 21 days after the proposal is filed, unless the court allows more time.

At that meeting, creditors vote.

For the proposal to be accepted, it must be approved by:

• a majority in number of the creditors who vote; and
• creditors representing two-thirds in value of the voting claims.

That means both the number of voting creditors and the dollar amount of their claims matter.

This is a higher bar than a consumer proposal, which passes on a simple majority measured in dollars alone.

For many straightforward personal Division I proposals, there is usually one class of unsecured creditors. The basic practical point is that the proposal has to satisfy both parts of the voting test.

If the creditors accept the proposal, it still goes to court for approval.

For many debtors, the court approval step is less frightening than it sounds. The greater risk is what happens if the proposal is not accepted or approved.

Difference 3: A Failed Division 1 Proposal Can Lead to Bankruptcy

This is the most important difference.

If a consumer proposal is rejected by creditors, you do not automatically become bankrupt.

The consumer proposal simply does not proceed.

A consumer proposal can also end if you fall behind on payments. The test is specific. It ends if you miss three payments where payments are made monthly or more often, or if you fall three months behind where payments are less frequent. Your creditors regain their rights, but the default does not automatically make you bankrupt.

A Division I proposal is different.

If creditors reject a Division I proposal made by an insolvent person, the Bankruptcy and Insolvency Act treats that person as having made an assignment in bankruptcy.

In plain language, a rejected Division 1 proposal can put you into bankruptcy.

The same risk exists if the court refuses to approve the proposal.

That automatic bankruptcy consequence does not exist in a consumer proposal. It is the main reason Division I proposals must be approached carefully.

What If a Division 1 Proposal Is Accepted but Later Defaults?

There is another difference after the proposal is accepted.

A consumer proposal can be automatically annulled if payments fall far enough behind, on the three-payment test above.

A Division I proposal does not end automatically in the same way. If an approved Division I proposal goes into default, it does not end by itself, and you have a window to cure the default. To end the proposal, a creditor or the trustee has to ask the court for an annulment order.

Only if the court grants that order are you deemed to have made an assignment in bankruptcy.

So the risk exists both at the front end and later if the proposal fails after approval.

The important point is simple: Division I can be a useful alternative to bankruptcy, but it has to be built carefully because failure can lead directly to bankruptcy.

Who Actually Needs a Division 1 Proposal?

You may need a Division 1 proposal if:

• you are an individual with more than $250,000 of debt, not counting a mortgage on your principal residence;
• you want to make a formal proposal to creditors instead of filing bankruptcy;
• you are proposing on behalf of a corporation;
• or your situation is unusual enough that a trustee advises Division I even though you are under the consumer proposal limit.

For most individuals under the $250,000 limit, a consumer proposal is usually simpler and lower risk.

A Division I proposal is heavier. It involves a required creditors’ meeting, a formal vote, court approval, and a bankruptcy risk if it fails. Lawyers are often involved. The process may also cost more.

That does not mean Division I should be avoided where it is the right tool. It means it should not be selected casually where a consumer proposal is available.

If You Are Under the $250,000 Limit

In a small number of cases, an individual under the consumer proposal limit may still use Division I.

That decision should be made in a consultation with a Licensed Insolvency Trustee.

It is not something to choose from a checklist.

The reason is practical. Division I is usually more formal, more expensive, and riskier than a consumer proposal, and the true cost of the process is easy to understate. Court approval is required, and court approval can take time. As of mid-2026, court schedules in some registries are heavily backlogged, and timelines vary a good deal by province and registry. Counsel is often retained. If an amendment is needed later, the matter may have to go back to court, at renewed cost and with the bankruptcy risk in play again at that stage.

For smaller debts, that machinery is often too heavy.

If a consumer proposal is available and appropriate, it is usually the cleaner path.

What If the Debt Is Over $250,000 Because of Canada Revenue Agency?

Some people reach the $250,000 issue because of a large Canada Revenue Agency debt.

That may involve tax debt, a garnishment, a frozen account, or a disputed assessment.

If Canada Revenue Agency collection is the immediate problem, there may be additional issues to consider before choosing the right process. Stopping CRA Garnishments and Bank Freezes: A Practical Guide for Canadian Business Owners answers the over-$250,000 question in that specific tax collection context. See that guide’s question 32.

The general point remains the same. If the debts exceed the consumer proposal limit, a consumer proposal may not be available. A Licensed Insolvency Trustee can review whether Division I, bankruptcy, an objection process, or another step is the proper path.

Division 1 Proposal or Bankruptcy

Once your debts are over the consumer proposal limit, the real comparison is usually between a Division 1 proposal and bankruptcy.

That comparison depends on your income, assets, debts, creditors, and ability to make payments.

A Division I proposal may make sense where:

• you have income to fund a proposal;
• creditors are likely to receive more through the proposal than in bankruptcy;
• there is a reason to avoid bankruptcy;
• the offer has a realistic chance of creditor approval;
• and you can afford the proposed payments.

Bankruptcy may be the more practical option where the proposal cannot be funded, creditors are unlikely to accept it, or the risk of a failed Division I proposal is too high.

The general comparison between a proposal and bankruptcy is explained in Consumer proposal versus bankruptcy, worked line by line.

Why You Should Not File One Without Advice

The risk in Division I is not theoretical.

Because rejection can lead to bankruptcy, the proposal should be assessed before it is filed.

That assessment usually includes:

• who the main creditors are;
• how much each creditor is owed;
• what creditors would likely receive in bankruptcy;
• what the proposal offers;
• whether the monthly payments are realistic;
• whether any creditor is likely to oppose;
• whether a consumer proposal is unavailable;
• and whether bankruptcy is actually the better option.

A Licensed Insolvency Trustee should explain the likely response from creditors before you decide to proceed.

The goal is not to file a proposal and hope.

The goal is to file a proposal that has been built to pass.

Common Questions

Practical Takeaway

A Division 1 proposal is not simply a larger consumer proposal.

It does the same basic job, but the process is more formal and the consequences of failure are more serious.

For most individuals, Division I becomes relevant because their debts are over the consumer proposal limit. For corporations, it is the only proposal process available.

The key point is this: a Division 1 proposal can help avoid bankruptcy, but if creditors reject it or the court refuses it, bankruptcy will follow automatically.

That is why the proposal should be built only after a Licensed Insolvency Trustee has reviewed your debts, your creditors, your income, your assets, and the likely result if you filed bankruptcy instead.