Debt Relief Experts
Once a bankruptcy or a consumer proposal is filed in Canada, a “stay of proceedings” kicks in. This article will explain what a stay of proceedings is, how it works, and why it matters for Canadians facing financial difficulties.
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What is a Stay of Proceedings?
A stay of proceedings is an automatic legal protection that, once in place, stops creditors from starting or continuing most collection actions against you.
The Bankruptcy and Insolvency Act states that:
‘upon the filing of a proposal made by an insolvent person or upon the bankruptcy of any debtor, no creditor with a claim provable in the bankruptcy shall have any remedy against the debtor or his/her property or shall commence a claim provable in bankruptcy until the trustee has been discharged or until the proposal has been refused, unless with the leave of the Court and on such terms as the Court may impose.’
This stay provides much-needed creditor protection by stopping unsecured creditor actions, including:
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Collection calls and letters
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Legal actions and lawsuits
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Bank account seizures
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Utility disconnections for past-due amounts
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Landlord evictions for rent arrears
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Requirements to Pay from the Canada Revenue Agency (CRA)
Any existing legal proceedings and collection actions must stop, and creditors cannot start new proceedings without court permission.
There are, however, certain exceptions:
A stay of proceedings does not prevent actions by secured creditors (such as mortgage or car lenders) from reclaiming their collateral if you’ve fallen behind on your loan payments. Even if you file for bankruptcy, you must stay current on secured payments if you want to keep your home, car, or other secured assets.
A stay of proceedings does not apply to debts not discharged under bankruptcy law, including child support, spousal support and debts incurred due to fraud or misrepresentation.
Stop Creditor Actions Now
How Fast Does A Stay Of Proceedings Work?
A bankruptcy stay of proceedings is automatic and immediate. A stay is granted when you file a bankruptcy or consumer proposal. It immediately stops creditors from taking action to collect their debt.
Upon filing, your Licensed Insolvency Trustee sends the stay to the bankruptcy court and notifies your creditors. Your employer will only be notified if a garnishment order is underway.
Your LIT will now handle all communication with your creditors. Creditor calls may take a few days to stop as notifications are sent and communication is filtered to the right departments. If you continue to receive calls, tell them you have filed a bankruptcy or proposal and give them the name of your Licensed Insolvency Trustee.
How Long Does a Stay of Proceedings Last?
The stay of proceedings lasts the duration of your insolvency proceeding:
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In bankruptcy, the stay remains in effect until you receive your discharge. This typically lasts 9 to 21 months for a first-time bankruptcy.
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Protection continues during the entire length of your consumer proposal, which can last up to 5 years.
The stay ends when you are discharged, and your debts are eliminated, at which time you no longer need creditor protection.
However, a stay can end early if your proposal is rejected or annulled or your creditor successfully applies to the court to lift the stay.
Alternatives to Bankruptcy Stay of Proceedings
If you are hesitant to file bankruptcy, options like a consumer proposal or a Division I proposal allow individual debtors to negotiate a repayment plan with creditors.
Specifically, a consumer proposal:
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Offers the same stay protection as bankruptcy
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Allow you to avoid bankruptcy
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Can be more flexible in terms of repayment options
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Has less impact on assets and your credit score
Other options like debt consolidation or credit counselling don’t provide formal legal protection from creditors.
If you’re facing aggressive collection action or are struggling with overwhelming debt, contact a Licensed Insolvency Trustee today for a free consultation. We can explain how a stay of proceedings could protect you and help you understand all your debt relief options.
