What Is a Division I Proposal in Canada? (And How It Differs from a Consumer Proposal)

A Division I proposal is a formal debt restructuring agreement filed under Division I of Canada’s Bankruptcy and Insolvency Act (BIA). It applies to individuals whose unsecured debt exceeds $250,000 — not counting the mortgage on a principal residence — and to corporations of any size. A consumer proposal (Division II) is capped at $250,000 and available only to individuals. Both must be filed by a Licensed Insolvency Trustee. The key practical differences: Division I requires a higher creditor vote threshold, mandatory court approval, and carries the risk of automatic bankruptcy if creditors vote no.

What Makes a Division I Proposal Different?

Both types of proposals let you repay creditors less than you owe while avoiding bankruptcy — but Division I operates under stricter rules at every stage.

Creditor vote threshold. A consumer proposal passes when creditors holding more than 50% of the dollar value of proven claims vote in favour. A Division I proposal requires two separate thresholds: a majority in the number of creditors who vote, and creditors holding at least 75% of the dollar value must approve. Clearing both bars is harder, especially when a handful of large creditors hold most of the debt.

Court approval. After a consumer proposal clears the creditor vote, it becomes binding. A Division I proposal requires an additional step: a court must review and approve the terms before they take legal effect. The court confirms that the proposal is reasonable, that the trustee followed proper process, and that the terms are not unconscionable.

Automatic bankruptcy on rejection. This is the sharpest edge. If creditors vote down a consumer proposal, the individual can walk away, file again later, or explore other options. If creditors vote down a Division I proposal made by an individual, that person is automatically deemed bankrupt under the BIA — no second vote, no renegotiation. The trustee then administers the bankruptcy under the same file.

No 5-year cap. Consumer proposals cannot exceed 60 months. Division I proposals have no statutory time limit. Creditors and the court can agree to a repayment period longer than 5 years, which matters when debt loads are large and monthly payment capacity is limited.

Trustee’s role. The trustee’s oversight is more intensive under Division I. The Office of the Superintendent of Bankruptcy (OSB) monitors the file, and the court process adds a layer of formal accountability that consumer proposals skip.

The $250,000 Threshold Explained

The $250,000 figure comes from the BIA’s definition of an “insolvent person” eligible for a consumer proposal under Division II. Once unsecured debt crosses $250,000 — excluding the mortgage secured against your principal residence — Division II is no longer available and Division I becomes the mechanism under the BIA.

What counts toward the $250,000? Unsecured credit card debt, unsecured lines of credit, personal loans, payday loans, CRA tax debt, unpaid rent (if unsecured), and guarantees you have signed for other people’s debts. What does not count: the balance on your home mortgage (secured against your primary residence), or secured debts tied to assets such as a car loan where the lender holds the title.

This matters because many people underestimate how much of their debt is actually unsecured. A person with a $600,000 mortgage, $190,000 in credit card debt, and a $70,000 tax debt to the CRA has $260,000 in unsecured debt. The mortgage does not count. That person cannot file a consumer proposal — Division I is their BIA option.

OSB data for Q1 2026 shows roughly 78% of all insolvency filings in Canada are consumer proposals. Division I proposals are a small fraction of that total, but they handle the country’s largest individual debt loads — cases where ordinary Canadians have accumulated significant business debt, investment losses, or tax arrears well above the $250,000 mark.

The Rejection Risk: What Happens If Creditors Say No

The automatic bankruptcy consequence deserves a full section because it changes how you should think about Division I proposals compared to consumer proposals.

Under the BIA, if a Division I proposal by an individual is refused by creditors, or if the court refuses to approve it, or if the debtor annuls it after acceptance, the individual is deemed to have made an assignment in bankruptcy at the moment of the refusal. The trustee administering the proposal then administers the bankruptcy. There is no grace period and no opportunity to file a revised proposal.

This means the creditor vote is not a negotiating stage — it is a binary outcome. Either 75% by value and a majority in number approve, or you are bankrupt. Your trustee will model the creditor recovery under bankruptcy before filing the proposal. If the proposal does not offer creditors materially more than they would recover in a bankruptcy, creditors have little incentive to approve it.

A well-constructed Division I proposal needs to clear a higher bar than a consumer proposal. Your trustee will usually secure informal creditor support before calling the formal meeting, so surprises at the vote are less common than the rule language suggests. But the stakes are higher and the process takes longer.

Division I for Corporations

When a company needs to restructure debt under federal insolvency law, the BIA’s Division I is the mechanism — provided total debt is under roughly $5 million. Above $5 million, corporations typically use the Companies’ Creditors Arrangement Act (CCAA), which provides more flexibility but is also more expensive and complex.

A corporate Division I proposal operates similarly to an individual one: the company files through a Licensed Insolvency Trustee, creditors vote using the same thresholds (majority in number, 75% by value), and the court approves the plan. There is no debt ceiling for corporations under Division I — a company with $3 million in debt and a company with $4.9 million in debt both fall under Division I.

The automatic bankruptcy consequence also applies to corporations. If creditors vote down a corporate Division I proposal, the company is deemed to have made an assignment in bankruptcy. The OSB oversees the trustee’s administration of the corporate bankruptcy that follows.

Corporate Division I filings are common in sectors with lumpy, cyclical revenue — construction, retail, and hospitality — where cash flow crunches create large short-term creditor claims that the underlying business can service over time with restructured terms.

A Real-World Example: When You Think You Qualify for a Consumer Proposal — But Don’t

Priya Mehta is a 44-year-old dentist in Hamilton, Ontario. She built a practice over 12 years, took on debt to buy equipment, and personally guaranteed a commercial lease and a business line of credit when the business hit trouble during a slow period. By the time she sought help, she carried:

• $95,000 in personal credit card debt
• $112,000 in a personal loan she took to cover payroll
• $68,000 owed to the CRA for HST arrears
• A $520,000 mortgage on her home (secured)

Total unsecured debt: $275,000. Her mortgage does not count toward the threshold. Priya assumed she could file a consumer proposal because she thought of herself as “just a person with debt.” Her trustee explained that $275,000 in unsecured debt places her squarely in Division I territory.

Her trustee modeled a Division I proposal offering creditors $0.60 on the dollar over 54 months. The proposal cleared both vote thresholds and was approved by the court. Priya avoided bankruptcy and kept her practice open. The process took four months from first meeting to court approval — roughly three times longer than a typical consumer proposal.

Is a Division I Proposal Right for You?

Division I proposals work best when the debt load is large enough to make the higher creditor vote threshold achievable — which usually means offering creditors a recovery that clearly exceeds what they would get in a bankruptcy. They also work when income is sufficient to support a meaningful repayment plan, even if it extends beyond five years.

They are not the right tool when the math does not support a creditor vote. If your unsecured debt is $310,000 but your assets are minimal and your income barely covers essentials, creditors may calculate that bankruptcy recovery is comparable to what your proposal offers — and vote no. Your trustee models both scenarios before filing.

If your unsecured debt is below $250,000 and you are an individual, a consumer proposal is almost always the better option: lower vote threshold, no court step, no automatic bankruptcy risk, and a guaranteed 5-year maximum term.

For corporate debt restructuring under $5 million, Division I is the primary BIA mechanism. Companies with $5 million or more in debt should ask their trustee whether CCAA proceedings are more appropriate.

Division I vs. Consumer Proposal: Side-by-Side