What is a Bankruptcy Automatic Stay of Proceedings in Canada?

What is a Bankruptcy Automatic Stay of Proceedings in Canada?

The world of bankruptcy is filled with terms and phrases that you may never have heard of before you decided to file for it, including a “stay of proceedings.” One of the main reasons to file for bankruptcy is to stop the collection calls and put an end to your creditors’ continual demand for payment of the debts you still owe them.

Trying to stop collection harassment? Reading this.

Of course, creditors have every right to go after consumers who still owe them money, but when the funds aren’t available to repay such debt, something needs to be done to stop the pressure. Luckily, a “stay of proceeding” plays a key role in this particular situation.

Before you decide to file for bankruptcy, always make sure to consider these other options.

What is a Stay of Proceeding in Canada?

This might sound like a fancy, sophisticated term, but the concept is rather simple to understand. A stay of proceeding in Canada essentially stops (“stays”) creditors from continuing to pursue you for the money you owe them.

When you file for bankruptcy or a consumer proposal, a stay of proceeding is automatically initiated without you having to start the process yourself. Once you inform your licensed insolvency trustee that you’re filing for bankruptcy or a consumer proposal, your trustee will report to the courts and all parties involved that you’ve filed accordingly. At that point, a stay will be put in place that will stop any threat of legal action.

To learn about Licensed Insolvency Trustees and what they do, click here.

Even lawsuits that have already started and are underway will be ceased immediately once a stay of proceeding is automatically put in place after filing for bankruptcy or a consumer proposal. Even if you’ve been successfully sued by a creditor, the enforcement of the court order will be stopped with the introduction of a stay of proceeding.

Your trustee has many duties and obligations throughout your bankruptcy, and one of them is to deal with your creditors and any actions they may want to take against you accordingly. If anyone of your creditors wants to take you to court and sue you for monies owed, the stay of proceedings will protect you throughout the duration of your bankruptcy.

Your stay of proceedings will cease once you are discharged from bankruptcy or your consumer proposal has been completed. However, there’s usually nothing to worry about in terms of creditors seeking legal action because your debt is included in the bankruptcy (with certain exceptions). Since your debt would be waived with your discharge, creditors typically have no basis to take you to court to recoup their owed funds.

Click here to find out what debts can and can’t be included in a bankruptcy.

Does a Stay of Proceedings Stop Revenue Canada From Coming After You?

You may owe the federal government taxes, but a stay of proceeding applies to any income tax debt you may have as well. Once you file for bankruptcy or a consumer proposal, your trustee will notify the Canada Revenue Agency (CRA). At this point, they will be required to stop any collection efforts, just as your creditors would.

Does owing taxes to the CRA affect your credit score? Find out here.

Before an automatic stay of proceedings is initiated, the CRA can start putting a freeze on your bank accounts or even take measures to have your wages garnished. But once that stay of proceeding is put into effect, all such activity must cease. That’s why it’s so important to initiate some sort of process to protect yourself from having any further assets taken from you.

When it comes to the CRA, a lien can eventually be placed on your home if a stay of proceeding is not initiated early enough. Once that lien has been placed, filing for bankruptcy or a consumer proposal afterward won’t do anything to eliminate it.

What Exceptions Exist For a Stay of Proceeding in Canada?

Certain exceptions exist when it comes to a stay of proceeding and the extent of protection that it offers:

    • Your car can still be repossessed if you have missed car payments and are defaulting on your auto loan. The lender who loaned out the funds for an auto loan may also choose to place a lien on the vehicle.
    • Any spousal support or child support payments can still be collected, regardless of any filing of bankruptcy or consumer proposal.
    • Any debts accumulated from fraudulent activity or misrepresentation on your part won’t be covered by a stay of proceeding.
  • If you’ve recently completed or left school, your student loan probably won’t be covered.

Can Creditors Fight a Stay of Proceeding?

Yes, creditors have the right to request that a stay of proceedings be lifted, but only if they go through the proper sequence of actions. The only way a creditor can seek legal action against you is if they apply to the court to lift the stay of proceeding and are successful in doing so.

Once a motion has been brought before the court, the creditor will be in the position to argue to have the stay of proceeding lifted in order to identify the precise amount that is owed. The creditor may also be required to argue that the type of debt owed is not covered by bankruptcy or a consumer proposal. You may then defend yourself in court and argue against this testimony in order to help ensure your stay remains.

It should be noted that motions to lift a stay of proceeding by a creditor are rather uncommon.

Have you declared bankruptcy? Read this to learn how you can rebuild your credit.

Final Thoughts

Once you file for bankruptcy or a consumer proposal, a stay of proceeding is automatically put in place and your creditors are notified of it right away. At this point, you’re protected against any threats of lawsuits from creditors, as long as the debts they seek fall under the law of bankruptcy in Canada. If you’re vulnerable to being legally threatened to repay your debts, speak with a licensed insolvency trustee who will help you choose the right path of protection for you.

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Lisa has been working as a freelance writer for more than a decade, creating unique content that helps to educate Canadian consumers. She specializes ...

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