Once a bankruptcy or a consumer proposal is filed in Canada, a “stay of proceedings” kicks in.
What a bankruptcy "stay" means is that unsecured creditors are prohibited from launching or continuing lawsuits, and from performing wage garnishments, against the bankrupt individual in question. Indeed, this automatic feature of bankruptcy law even forbids these folks from contacting you at all.
Secured creditors, meanwhile, can still seize those assets you’ve provided as security if you don’t keep up with your payments.
How Fast Does The Stay Work?
The stay is automatic. Filing for bankruptcy protection immediately negates any actions that might be freshly enacted or pending.
The trustee sends the stay to the bankruptcy court that is looking after your legal proceedings, and to your employer if there’s a garnishee underway, and should do so immediately after you declare bankruptcy. Creditor calls may take a few days to stop as notifications get sent and communication is filtered to the right departments.
It should be noted that the Stay of Proceedings does not apply to certain debts — including child support, spousal support and repayment of debts based on fraud or misrepresentation — that cannot be eliminated by bankruptcy law.
In part, the stay 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.
Typically, this arrangement is a cut-and-dried affair, with creditors and employers both understanding the intent of the stay and abiding by it faithfully. Sometimes, a bankruptcy trustee must threaten legal action because of a misunderstanding on the part of a stay’s intended recipient. And other times a creditor applies to the bankruptcy court to continue a specific legal action against you, and it is their right to do so if they can demonstrate that there are reasonable grounds for legal action.
If too many debts are resulting in legal action that would benefit from a stay of proceeding provided under bankruptcy law, give us a call at 1-866-747-0660. We can help.