Will Bankruptcy Stop a Lawsuit?

Stop a Lawsuit in Canada By Going Bankrupt: Is it Possible?

Bankruptcy, a term that carries a certain degree of fear and anxiety for many, can actually be a lifeline in certain situations. One common question that arises is: will bankruptcy stop a lawsuit in Canada? In this article, we delve into the intricacies of bankruptcy, lawsuits, and how they intersect.

Understanding the Basics of Bankruptcy

Bankruptcy is a legal process designed to provide relief to individuals who are unable to pay their debts. It involves a clearing of most unsecured obligations, which often includes debts arising from a judgment lawsuit.

In most instances, filing for bankruptcy halts an ongoing lawsuit and can even stop wage garnishment if it has already commenced.


Note: Filing for bankruptcy should not be seen as an escape route but as a last-resort mechanism for debt relief.


The Anatomy of a Judgment or Lawsuit

A judgment or lawsuit is not a trivial matter. It signifies the use of legal channels to recover debt. Understanding this process can help alleviate some of the fear associated with it.

The Judgment Process

A judgment is essentially a court order validating your debt to a creditor. The judgment process generally follows these steps:


  1. Receipt of a Statement of Claim: The process begins when you receive a legal document known as a statement of claim from a creditor or an attorney.
  2. Court Decision: If you fail to respond to this document or lose your defense in court, a judgment is awarded to the plaintiff.
  3. Debt Collection: With the judgment, the creditor can initiate collection efforts.
  4. Wage Garnishment: If the creditor knows your employer, they can garnish your wages.
  5. Bank Account Seizure: If your bank details are known, the creditor can seize funds from your bank account.
  6. Asset Seizure: The creditor can also seize and sell your assets to recover the debt.


It’s crucial to understand that you cannot be incarcerated for not paying your debts. Moreover, some income types, like social assistance and certain pensions, are immune to garnishment.

The Impact of Bankruptcy on a Judgment

Filing for bankruptcy or a consumer proposal introduces a stay of proceeding, effectively halting most creditor actions for judgment debts, including garnishments. It can even unfreeze a bank account.

However, not all debts can be discharged through bankruptcy. Debts related to fraud, misrepresentation, court-imposed fines, student loans less than 7 years old, and child support or alimony are exceptions. The stay of proceeding does not apply to these debts.

The Importance of Acting Before a Lien is Placed

While bankruptcy can stop a wage garnishment and prevent most creditors from seizing your bank account funds, it doesn’t affect secured debts. If a creditor places a lien on your assets, they can continue to seize and sell the assets, even if you file for bankruptcy.

If you find yourself unable to pay a judgment order, it’s recommended to consult a Licensed Insolvency Trustee. They can provide advice on how a consumer proposal or bankruptcy can help in your situation.

Closing Thoughts

In conclusion, the answer to the question, will bankruptcy stop a lawsuit in Canada?, is generally yes. However, this solution should be considered carefully and relied upon only as a final resort. It’s always wise to seek professional advice and explore all available options before deciding on this path.

Remember, the road to financial recovery is often long and winding, but with the right knowledge and resources, it is indeed navigable.

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