Bankruptcy Protection in Canada: An Automatic Stay of Proceedings
The moment a consumer proposal or bankruptcy is submitted in Canada, an automatic Stay of Proceedings comes into effect. This legal mechanism provides immediate protection to the debtor from creditors and debt collectors.
Understanding the Concept of Stay of Proceedings
The Stay of Proceedings is a legal order that halts creditors from initiating or continuing any lawsuits, and bars them from undertaking any collection actions. Essentially, it commands the creditors to maintain their distance. The Stay of Proceedings effectively puts a stop to collection calls, wage garnishments, and prevents creditors from seizing your bank account.
“The protection offered by a stay of proceedings is immediate and automatic. The moment you submit a bankruptcy or consumer proposal, you are protected.”
This protection is not absolute, however. The Stay of Proceedings does not apply to secured creditors. If you cease making payments on your mortgage or car loan, your home can still be foreclosed and your car repossessed.
The Speed of Stay of Proceedings
The Stay of Proceedings is automatic and instantaneous. It comes into effect the moment a bankruptcy or consumer proposal is filed. This automatic feature of the bankruptcy law immediately negates any collection or legal actions that have been initiated or are in progress.
The trustee sends the stay to the bankruptcy court overseeing your legal proceedings and to your employer (if a garnishment is in place) immediately after you declare bankruptcy. It may take a few days for collection calls to cease as notifications are sent and the information is relayed to the appropriate departments.
The Scope and Limitations of the Stay of Proceedings
While the Stay of Proceedings provides immediate relief, there are certain debts to which it does not apply. These include child support, spousal support, and repayment of debts based on fraud or misrepresentation. These cannot be eliminated by bankruptcy law.
A typical Stay of Proceedings dictates:
“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.”
Dealing with Non-compliant Creditors
Creditors and employers usually understand the intent of the stay and abide by it. However, there are cases when a bankruptcy trustee has to threaten legal action due to a misunderstanding. In some instances, a creditor may apply to the bankruptcy court to continue a specific legal action against you. They have the right to do this if they can demonstrate reasonable grounds for the action.
If you find yourself being threatened with legal action by creditors, consider the protection a Stay of Proceedings can offer. Bankruptcy protection in Canada can offer relief from relentless collection calls, wage garnishments, and can also help eliminate debt.
To learn more about bankruptcy protection in Canada and the automatic stay of proceedings, reach out to a Licensed Insolvency Trustee today. They can guide you through the process and help you regain your financial footing.
For more information on bankruptcy protection in Canada, you can call at 1-877-879-4770. They can help you understand the process and provide the assistance you need.
