A Consumer Proposal and a Division 1 Proposal are two different types of proposals as stated in the Bankruptcy Insolvency Act (BIA). While both the proposals can be availed by Canadians, but there are some differences in the two which might give one precedence over the other.
Consumer Proposal and Division 1 proposal:
Before we move on to the differences between the two proposals, let us first have a look at what each of these proposals is actually about.
Consumer Proposals were designed to help people settle their debts as an alternative to filing for bankruptcy. A person having a debt of or under $250,000 can file for a Consumer Proposal. Amount of debt exceeding this limit would mark you ineligible to file for this proposal.
Also known as a ‘Commercial Proposal’ , Division 1 proposals were initially designed for business owners who wanted to deal with their debts without having to sign up for bankruptcy. However, it is available as an alternative option to individuals as well.
Now, we shall discuss the differences between the two proposals. The first and the most obvious difference is in terms of the amount limit each of them carries; as mentioned above the Consumer Proposals have a limit of $250,000 whereas the Division 1 Proposals are limitless.
Another major difference between the two is that if you are opting for a Division 1 Proposal, but have not been able to strike a successful negotiation with your creditors, you are required to file for bankruptcy. There is no such concept in a Consumer Proposal; filing one and not being able to negotiate anything with your creditors simply would bring you back to square one from where you first started, you would not be asked or required to file for bankruptcy unless you make your own call for filing one.
The third difference and probably the most important one is this that Consumer Proposals are a simpler process with Division 1 proposals being more complicated. Once you have filed for a Consumer Proposal, the decision is passed on to the unsecured creditors who have a period of 45 days to vote either for or against the proposal. They may even present a counter-offer of their own. Consequently, if majority of the creditors have voted for the proposal, the proposal is marked as approved 15 days later.
In a Division 1 Proposal things are more formal; within 21 days of filing this proposal, a Meeting of Creditors is held. At this meeting, the Trustee presents a report which covers the person’s business and financial affairs. Consequently the Creditors then decide whether they want to vote for or against the proposal which ultimately decides whether the proposals gets accepted or rejected.
The only thing you need to keep in mind when choosing between the two proposals is this that go for a Division 1 proposal when you have high levels of debt to settle, otherwise a Consumer Proposal may be enough for you.