Stay of Proceedings meaning
If you enter into a formal debt solution in Canada, you receive immediate legal protection from creditor action.
A Stay of Proceedings is governed by the Bankruptcy and Insolvency Act:
69.3 (1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.
In other words, all creditor actions such as collection calls, legal action and wage garnishments will stop.
Creditors cannot contact you or take further steps to recover the money owed. No further interest can be applied to your debts.
Under the law, creditors must conform to these rules, and they can only have it lifted by applying to the court.
How a Stay of Proceedings works
When you file for bankruptcy or a consumer proposal, a Stay of Proceedings commences, and your creditors are notified.
Your insolvency administrator, the Licensed Insolvency Trustee, is responsible for handling this, and you don’t have to do anything.
At this stage, legal action from your creditors stops, including threats of legal action, pending legal action and active legal action.
If one of your creditors is looking to take you to court for your debts, this Stay of Proceedings will protect you during your bankruptcy.
Your trustee can also contact your employer to lift any wage garnishments you may have.
How long does a Stay of Proceedings last?
A Stay of Proceedings will remain in place until the end of your bankruptcy or consumer proposal unless the creditor applies to have it lifted by the court.
This is a rare occurrence, and the creditor has to prove that court action is necessary or that they have valid grounds to do so.
You can defend yourself in court to ensure the Stay of Proceedings remains in place.
Which debts are protected by a Stay of Proceedings?
If you file for bankruptcy or a consumer proposal, a Stay of Proceedings will cover most creditors for unsecured debts such as:
- Credit card debts
- Personal loans
- Bank loans and overdrafts
- Income taxes
- Payday loans
- Utility bills
- Other unsecured lines of credit
- CRA debts (e.g. unpaid taxes or HST)
- Utility bills. (You can’t include bills for services you are continuing to use)
- Unpaid rent
Which debts are not protected by a Stay of Proceedings?
A Stay of Proceedings doesn’t stop a court order for child or spousal support, nor does it cover debts that cannot be included in a bankruptcy or a consumer proposal.
Some examples of debts that it does not protect:
- Secured debts such as a mortgage or car loan.
- Property taxes.
- Any fine or penalty imposed by a court, e.g. a parking ticket or fine.
- Unpaid alimony or child support.
- Debts obtained by fraud.
- Debt obtained through false pretence (e.g. lied on a loan application).
- Student loans (if less than seven years since leaving school)
- An award by a civil court for damages arising from personal or sexual assault.
These surviving debts will continue to accrue interest throughout the bankruptcy or consumer proposal period.
Secured creditors in a Stay of Proceedings
Secured creditors can still seize assets you’ve provided as security if you cannot make your payments. For example, a creditor can still repossess your car if you do not keep up payments on a car loan.
A Stay of Proceedings is one of the main benefits when declaring bankruptcy or entering into a consumer proposal.
A Licensed Insolvency Trustee will explain this process in more detail when you schedule a consultation.
If you want to learn more about how you can resolve your debts, connect you with a trustee for a free consultation.
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