Bankruptcy’s Automatic Stay of Proceedings in Canada

Bankruptcy's Automatic Stay of Proceedings in Canada

The Profound Impact of Bankruptcy’s Automatic Stay of Proceedings in Canada

Declaring bankruptcy or filing a consumer proposal in Canada comes with an incredibly beneficial feature known as the Bankruptcy Automatic Stay of Proceedings. It is a legal term that, in essence, halts (stays) any ongoing legal actions against you by your creditors. This article provides an in-depth discussion of this essential aspect of bankruptcy law in Canada.

The Mechanism of the Automatic Stay of Proceedings

The Automatic Stay of Proceedings is an inherent component when you file a bankruptcy or consumer proposal. There’s no need to request one; it is automatically activated as soon as you initiate the filing process.

Upon communicating any legal action (either pending, initiated, or concluded) to your trustee, they will duly inform the court and the parties involved in the lawsuit about your bankruptcy filing. Consequently, the stay is implemented. This is a key part of your bankruptcy trustee’s role, which includes dealing with creditors and their actions on your behalf.

The protective shield offered by the stay remains in place throughout your bankruptcy unless a creditor seeks the court’s permission to lift it.

Once you’re discharged from bankruptcy (or your consumer proposal is completed), the stay ceases to exist. However, at this point, it’s no longer an issue since the debt would have been incorporated into your bankruptcy and eliminated via discharge, leaving no grounds for a lawsuit.

The Reach of the Automatic Stay of Proceedings

The automatic stay of proceedings is far-reaching and can halt any stage of the action against you. Here’s a quick breakdown of its impact:

  • It nullifies any threats of legal action over your outstanding debts.
  • It prevents any court action from progressing if the creditor has filed legal documents.
  • It immediately stops an ongoing legal action against you.
  • It ceases the enforcement of a Court Order if a Judgment has been granted against you.

One of the most frequently obstructed actions due to the bankruptcy filing is a wage garnishment.

The Limitations of the Automatic Stay of Proceedings

While the stay of proceedings is potent, it has its limits. For instance, it cannot halt Court Ordered payments, such as child or spousal support. The only way to pause these types of payments is to appeal to the issuing Court for modification.

Creditors, too, have the right to request the Court to lift the stay of proceedings, but they must adhere to specific procedures. They must present a motion before the Bankruptcy Court and argue why the halted Court action needs to continue. This could either be to ascertain the exact amount you owe or that the kind of debt you have is not covered under the bankruptcy or consumer proposal filing.

However, it is rare for creditors to move to lift the stay. In our experience, less than 1 in 1,000 cases see this happen yearly. Sometimes, all they are trying to do is establish a claim’s value in bankruptcy.

Moreover, the bankruptcy stay does not cover certain types of debt normally excluded under bankruptcy law. This encompasses fines, penalties, support payments, debts arising from fraud or misrepresentation, restitution Orders, and most student loans if you’ve recently left school.


If you find yourself threatened with or already entangled in a lawsuit, it’s crucial to consult with your legal counsel and a trustee. They can help determine whether filing a consumer proposal or declaring personal bankruptcy would be beneficial for your circumstances. The Automatic Stay of Proceedings could be an effective tool in dealing with your pressing financial issues.

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