One of the benefits of filing a consumer proposal or personal bankruptcy is something called a “Stay of Proceedings”. This is a legal term, but what it means is that the people you owe are stopped (stayed) from continuing any legal actions against you.
How A Stay of Proceeding Works
A stay of proceedings is an automatic feature of filing a consumer proposal or bankruptcy. You don’t have to ask for one – you get one as soon as you file.
As soon as you inform your trustee of a legal action (either pending, started, or completed) your trustee will put the Court, and the parties involved in the lawsuit, on notice that you have filed bankruptcy (or a proposal) and the stay is in place. This is one of the roles of your bankruptcy trustee — to deal with creditors and creditor actions for you.
This protection from your creditors remains in place during your bankruptcy unless the creditor applies to the Court to have it lifted.
Once you are are discharged from bankruptcy (or complete your proposal) the stay stops but at that time it doesn’t matter because the debt would have been included in your bankruptcy (we’ll note a few exceptions to this rule later) and has been eliminated by your discharge so there’s no longer any basis for a lawsuit.
What A Stay of Proceeding Will Stop
It doesn’t matter what stage the action against you is in. Filing bankruptcy provides protection from of all actions which means:
- If someone is threatening legal action for money you owe them, a stay of proceedings eliminates the threat.
- If they filed documents with a Court, the stay will stop the court action from proceeding.
- If someone has already started a legal action again a stay stops the action dead in its tracks.
- If someone has already sued you and been given a Judgment against you by the Court the stay of proceedings stops the enforcement of the Court Order.
One of the most common actions stopped as a result of the stay from filing bankruptcy is a wage garnishment.
As you can see, a stay of proceedings is a very powerful benefit when you file a consumer proposal or bankruptcy.
What a Stay Won’t Do
A stay does not work against Orders to pay child or spousal support. The only way to stop this kind of Court Ordered payment is to return to the Court that issued the Order and ask for it to be changed.
Creditors have the right to ask the Court to lift a stay of proceedings although they must follow specific steps. In order to lift the stay someone has to bring a motion before the Bankruptcy Court. They must then argue that the Court action that was stopped needs to proceed in order to determine how much you actually owe the person, or that the type of debt you owe is not covered by filing a consumer proposal or bankruptcy. Of course, you have the right to attend this hearing and argue against the request to lift the stay.
It is quite unusual for a creditor to bring a motion to lift the stay – we see fewer than 1 in 1,000 cases in our practice every year and sometimes all they are doing is establishing a value for a claim in bankruptcy anyway.
A bankruptcy stay also won’t deal with the types of debt not normally included under bankruptcy law. This includes things like fines and penalties, support payments, debts arising out of fraud or misrepresentation, restitution Orders, and most student loans if you have left school recently. (See our article on student loan debt for more details).
If you have been threatened with or are already involved in a lawsuit then you should speak to your legal counsel and a trustee to determine if filing a consumer proposal or personal bankruptcy will be of any benefit to you.
I signed a consumer proposal in Dec. 2014. I signed a contract with a company 2 weeks later. They are now suing me in small claims court – does the Stay of Proceedings apply to this action as it is a new lawsuit (and potentially new debt). The plaintiff’s lawyer has a copy of my consumer proposal but has not alerted the court.
Hi John. A consumer proposal only covers debts that existed prior to the filing of the consumer proposal, so a debt incurred 2 weeks after filing a consumer proposal would not be covered by the stay of proceedings.
Does a Bankruptcy stay of proceedings apply to actions initiated and ordered subsequent to the bankruptcy for claims arising post-bankruptcy?
No. The bankruptcy stay of proceedings only applies to debts that existed prior to the filing of the bankruptcy.
In British Columbia does filing for Bankruptcy get rid of the ICBC driver risk premium debt?
Hi Alex. There are some nuances to your question that are beyond the scope of this website, so we suggest that you contact our Licensed Insolvency Trustees in British Columbia who provide a no charge initial consultation to explain your options.
I filed a consumer proposal in July and added debts to this proposal as i went. I have fitness account that i added on as it was going to go to collections. This collections company refuses to comply with the proposal stating that they do not have to agree to this. My proposal was approved and they still refuse to accept it once by law you are suppose too. They continued to harass me for payment. My trustee has tried numerous times to contact them and left messages that they refuse to return. My trustee has not gotten a claim number from them you to pay them as thy refuse to accept the proposal. They have not reported on my credit history as bad debt collections unpaid. Are they legally entitiled to do this? who can i speak to instead of my trustee?
The Office of the Superintendent of Bankruptcy should be notified – they used to have a Creditor Compliance Unit to deal with these sorts of complaints. Failing that, all you can do is send the fitness account and collection agent a registered letter advising them to “cease and desist” with collections activities. If they think you owe the debt then they should proceed to Court to deal with it. If they contact you after you send this letter then you should notify the Ministry of Consumer Affairs as the collection agent is violating the rules and regulations they are required to follow under the law…
Hello! Thanks so much for this site.
I lost a case and a judgment order was set against me for $5 000 at Small Claims Court.
Since I am barely scrapping by supporting my kids and I, my mother suggested I filed a consumer proposal.
One question though: Once my consumer proposal is discharged (it would include the $5K debt) can the creditor come after me again and try to garnish my wages and take away my assets all over again? Will my consumer proposal not protect me after it is discharged? It’s a huge risk and want to ensure it is worth it.
Thank you for the advise and website.
Hi Ash. Once your consumer proposal is completed, all of your debts are discharged, meaning that the debts no longer exist, so they can’t come back to you later; that’s the point of a consumer proposal; it’s legal protection, which is why a consumer proposal is a very effective solution to eliminate a judgement.
Hi I was director of a corporation which had a big secured line of credit. The bank recalled the loan and as I couldnt pay trustees took over the Corp. Later the trustees brought along a motion to declare me as director a bankrupt. It’s been over 3 years since then. I did file my reports etc for a couple of years but the trustees kept opposing my discharge. I got demotivated and stopped filling my reports for over a year now. I need to file a motion to get a discharge. One of the creditors also took an ex party judgement against me. Pls advice what can be done
Your “best bet” will be to re-engage with the trustee, if for no other reason to determine exactly what the trustee requires you to do in order for them to stop opposing your discharge. If you are hesitant to speak with the trustee you may use a lawyer as an intermediary, but of course there will be a cost associated with doing so.
If you do not re-engage with the trustee and simply schedule a discharge hearing yourself you may find out in Court that the trustee is still opposing your discharge making the exercise moot…
When I filed for bankruptcy, i had rental arrears of $1000 already. I asked my trustee if this arrear should be included in my debts and she said no. However, I have not been able to pay more than the monthly rent since (still owing $1000) and my landlord just filed a motion to have me evicted and to repay the sum. Would the stay of proceedings apply because the amount was owed before I declared bankruptcy, or will it consider the date the motion was requested?
If I was your landlord, I would apply all your rent payments to the oldest unpaid rent first. In other words, the landlord is arguing that you are behind with this month’s rent, not the rent before you filed your bankruptcy. By accounting for your payments in this manner it means the rent debt has nothing to do with your bankruptcy so the Stay would not apply.
That doesn’t help you. You want the rent arrears listed and included in your bankruptcy – then it is a debt like any of your other debts and the landlord can’t evict you for not paying it. I think you need to go and speak with your trustee about how to handle this.
My ex filed bankruptcy to avoid paying me the court ordered settlement amount. It is not support or alimony. The court awarded me costs for several reasons…I can’t get a straight answer as to whether I am still entitled to collect the court appointed fines, or if they are cleared during the bankruptcy as well.
Hi Tracey. The answer depends on the wording of the court order. If the order classifies the court costs “in the nature of support” then they survive bankruptcy. If not, then they would be discharged in a bankruptcy. I would suggest discussing this with your lawyer, who would be best positioned to review the order. You could also ask your ex-husband’s trustee, although this is somewhat outside of their scope.
My former landlord has just served me and my husband and is suing us for back rent and damages. The amounts he is asking for is not true and also we deny other costs he says we owe. Though we do owe him some and never denied it and told him we would pay him back once hours at work would pick up. We just moved 1.5 months ago and he is already serving us and not giving us a chance to get back on our feet.However, we are barely getting by and feel he would not accept a payment plan that would work with our budget. If we filed for bankrupcy AFTER being served papers that he is suing…would the amount he is asking for be included in the bankrupcy?
Hi Tansi. Yes, rent arrears for a place you have moved out of would be discharged in a bankruptcy. You should consult with a licensed insolvency trustee to determine if this is the best course of action.
To Whom It May Concern,
Would you be so kind as to advise me what I should undertake regarding taxes owed to the CRA by my Corporation.I had fought the CRA in Tax Court and was only able to reduce the taxes to a third of what was owing. I self represented the Corporation and even though I caught the CRA lying about the majority of the facts of the initial audit findings as per their internal records ,I was unable to have the judge fully side for the Corporation due to a mental breakdown I experienced in court on the final day of hearings.The Corporation is insolvent and I have incurred a few hundred thousand dollars to support the Corporation’s debts over a few years. The Corporation has no funds and does not have any source of income.
Hi John. This is a complicated manner, so you should consult with an insolvency lawyer or licensed insolvency trustee. If the corporation owes taxes, the corporation could go bankrupt. If the taxes are also a personal obligation (such as with director’s obligations for HST) then your personal situation should be reviewed, which is why a discussion with a professional is the next step.
If someone did not disclose they were in a lawsuit suing someone and did not disclose it to their trustee is that fraud? Then the other party (defendants) got it dismissed at their cost and under the drop-dead rule a year after the consumer proposal date they got a judgment/fine for that day only. What does that mean is that breaking the law? This would be new debt as it was created after and only after the 2018 proposal (the court was mid-2019)
Hi Chris. That’s a difficult question because it will depend on the timing of the various events, so I would suggest you consult a lawyer to review this in detail and determine what actions can be taken.
My ex and I have a court order from 2013. In that order we spilt our assets (money). This is not child support or spousal This is money from property division. I let him keep the entire asset amount bc he needed it to continue to invest in the markets. So I let him pay me my assets payments monthly over a ten year term. He has been paying all along however he filed bankruptcy and in January he was put into bankruptcy by a judge. In March he stopped paying my assets payment. So does his bankruptcy protect him from paying me ? He is court ordered to pay that money but stopped in March and his bankruptcy date in January. Please help ?
Equalization payments are NOT protected under bankruptcy laws in Canada. They are treated like any other debt, sorry. You may be able to return to Family Court for a new Order, but you’ll need to speak to a lawyer about the likelihood of success.
I am drowning in debt due to personal injury that occurred before Covid and am now only working part time as the injury as left me unable to do my regular job. I have a law suit in the works but have not received any word as to how things are proceeding. If I claim bankruptcy could I loose my law suit or any money that may be awarded from my injuries and loss of income?
If you file for bankruptcy you lose the right to continue with the lawsuit – it is an “asset” that is transferred into your bankruptcy. You can ask for the licensed insolvency trustee handling your file to return the asset to you, but you want to have that agreement in writing before you file. The issue for most trustees is that if the lawsuit continues during your bankruptcy they may be held liable for the legal fees – you won’t find a trustee that will agree to that. Discuss this in detail before you file…
I’m currently in bankruptcy, and a civil suit has been filed against me after the bankruptcy. My understanding is that the civil suit will automatically be stayed. There has been no awarding of costs etc I have just been served.
The civil suit will be automatically stayed if the basis of the suit occurred prior to the date of your assignment in bankruptcy. You provide your trustee with a copy of the lawsuit if they were not already served and then confirm with their office whether they will be issuing a Stay of Proceedings. You should also ask your trustee what the suing party needs to do to have the Stay lifted, should they want to try to…
Hello, I am considering bankruptcy. I currently don’t have any debts, and no court orders against me. However I was sued for $800,000.00 in July 2017, and I’m currently self representing. The Plaintiff’s lawyer has filed for a Summary Judgment where 96% of decisions go against a self represented litigant. The lawsuit has been a great source of pain, and suffering. It has rendered my mind totally useless, I have been unable to maintain employment since the start of this lawsuit.
*My wife and I have been separated since before the start of the lawsuit but continued to live in the same house. (Saperated 2 years before the lawsuit)
*My wife has a property ( matrimonial home) under her name since we got married (10 years before the Plaintiff in the lawsuit and I met).
*I have no rights to the property since we got married as it was a part of our marriage agreement.
*My wife bought a business in her own field of expertise, and got the money by mortgaging her house. (2014)
*I moved out in Dec 2017 due to separation.
*I moved back in Dec 2019 but we are still separated.
*I have no assets beyond some personal possessions.
*My wife and I want to reconcile. But she is asking me to ensure all my affairs are in order and for me to maintain employment.
*I can’t think past the lawsuit as such I need to remove this hurdle before trying to find a job or start a venture.
There is a 96% chance that I will lose the Lawsuit. Simply because I don’t have lawyer and can’t afford one. (Accouring to NSRLP)
I know bankruptcy will stay the action. BUT
*Can the opposing party stop me from going bankrupt?
*Can I tell the opposing party if they continue the action I will file for bankruptcy?
Thank you for your time.
I strongly suggest you speak to a lawyer for legal advice. I recognize that you are self-representing, but your answer requires more consideration than you may receive by posting a question on a free website.
Generally speaking, when a person files for bankruptcy all civil matters are automatically stayed. That is a legal term that means no matter where they are in the process of suing you the lawsuit is stopped. The plaintiff has the right to apply to the Court to have the Stay lifted so there are no guarantees that the filing for bankruptcy will stop the people suing you from continuing the suit. Depending on the nature of the lawsuit, the debt may survive bankruptcy. You need to discuss the specifics of your suit with a lawyer to determine whether or not the suit against you may or may not survive. In addition to the lawsuit itself, the Plaintiff might apply to the Bankruptcy Court for any additional costs incurred, or they might apply to the Court to require you to pay some amount above and beyond the usual cost of filing for bankruptcy if they can convince the Court you deliberately caused their costs to be increased knowing you’d file for bankruptcy eventually.
I mentioned all of this because when you file for bankruptcy with only 1 creditor there is a very high likelihood that the creditor will make your bankruptcy much more complicated and expensive. You need to be very careful and receive proper legal advice before you file for bankruptcy in situations like the one you have described. Good luck working things out.
I filed a consumer proposal August 2020, and one of my debts was a credit card I had with the same bank I used for everyday banking. I was advised to switch banks, which I did. However I left the account in question open and would like to use it again. Does the stay of proceedings apply to this, as far as the bank being able to pull funds from my account this long after? I didn’t owe anything on the bank account itself..just don’t want to switch my direct deposit back and risk them taking my rent money.
I would advise against using the old bank account again. Legally the bank should not take any payments from your account now due to the proposal, but there is a good chance “accidents” may happen and money may be taken which might cause you to bounce the rent, or a car payment or other bills. In my opinion it is not worth the risk, but that is a decision you get to make…
How long does a stay of proceedings last as a result of filing a consumer proposal?
I have a statement of claim from Visa that has been stayed. Will they have to refile if I default after 2 years or so?
The stay remains in place as long as you are in the proposal for debts that are part of your proposal. Once you complete the proposal the debts are eliminated so the stay is no longer required.
Does a bankruptcy proceedings operate as a stop on criminal charges on the same subject matter?
No, bankruptcy law has no impact on criminal proceedings.
I went through bankruptcy and was discharged in Feb 2019. While I was in bankruptcy one of my creditors was involved in a class action suit. Vouchers were sent out to be cashed 3 years after the class action suit. When I went to cash in my voucher I was told it went to off set amount owing. I was under the assumption that all debt was eliminated. Can they legally do this?
The right of “set-off” is real. It says if you have two or more accounts with a company, owe money on one and they owe you money on another, the company is allowed to combine the accounts (set them off). In this case though, your interest in the lawsuit should have vested in your bankruptcy (ie you weren’t entitled to the money). The set-off should not have been permitted since the money from the lawsuit is owed to your bankruptcy, not to you. This is something you need to tell your trustee about…
filed for bankruptcy in 2014 after my divorce and have since been discharged. Included in the bankruptcy was $20k joint Line of credit, shared with my ex-spouse. Obviously my ex was left responsible for this debt. To my knowledge, it has been paid off, but now (8 years later) my ex is threatening to go to court, seeking repayment. I was told at the time of filing for bankruptcy that my ex would not be able to sue me for it. Should consider this an empty threat or is there something else I should know?
Based on what you have said this appears to be an empty threat, since your debts were discharged in your bankruptcy, and also the limitations period has also expired. However, to be safe, it’s probably best to discuss this with your family law lawyer to ensure that there were no terms in your separation agreement that would change this answer.
I filed a consumer proposal on 19th April, 2022. As usual, my Trustee notified all the creditors the same day. The next day, TD took money from my account (money for my day to day expenses) without my consent and without notifying me, and applied the money to my unsecured lined of credit (this line of credit also is part of the proposal). Now I have no money to pay rent, pay my child support, car loan, car insurance. That account had $4,000 for all my monthly expenses.
1. Can they take money from my bank account one day after i filed the proposal?
2. I am also terrified that I have little bit of stock investment in my TD Waterhouse TFSA account. Can they liquidate my investments too?
Please advise what should I do?
Anyone you owe money to on the day you file a bankruptcy or a proposal has the “right of set-off”. That means if you owe money on one account (say a credit card) and you have money in another account (say chequeing) they have the right to take the money in the chequeing account and apply it to the debt on the credit card (this is called setting off the two accounts). We instruct all of our client to switch banks BEFORE they file and make sure no excess funds are left in any of their old accounts just so this cannot happen. Sorry, but what they did was legal.
Unless you owe TD Waterhouse money they cannot “set-off” your investment account. Different companies even thought they share part of the same name.
Hi there, I received a notice from Alberta courts yesterday that I need affidavit before my hearing in the court (Master of Chambers) regarding my motor vehicle accident claims, but during those times I filed a bankruptcy and the court dismissed the civil case, now they are trying to lift the stay of proceedings due to failure to file of defence last July 7,2021 but I filed bankruptcy on June 17,2021 , so I don’t know how’s the procedure I thought as soon as I file bankruptcy they will be notified by my trustees and they did that’s the reason why I didn’t file a defence. I need help in making affidavit on my behalf before my hearing date on July 13 ? Please help me regarding this matter. Hope to hear back from you as soon as possible, What adviced can you give ? Thanks
I am sorry, but you need to speak directly with your trustee to deal with this (or a lawyer familiar with both insolvency law and accident claims).
I went through a nasty divorce in 2017 self represented and my ex was awarded costs of $39,000. This with the rest of the debt given to me, pushed me into bankruptcy. Her lawyer then put a lien on my house, and I have been unable to renew my mortgage as a result.
Though after reading your website, I now understand that this lien is illegal, I cannot find any way to get it removed. I was trying to refinance my house last week and this Bill came up with her new Lawyer, stopping the refinance dead in the water. Do I have any recourse? As this has cost me thousands of dollars?
Unfortunately, you need to speak to a lawyer, preferably a Family Law specialist. The legality of the lien depends on how the original Order was written and whether it was issued prior to filing for bankruptcy.
Hi I had a lawyer take me to court over a grossly exaggerated legal bill for work that they did for me. they got a court order to freeze my bank account with no notice to me and a court order to pay the money into the courts, which I have not done yet. Im thinking I might as well add her bill to all the others I have and get rid of everything and start fresh. so will a proposal/bankruptcy allow me to pay the money into a trustee and not the courts or do I have to follow the court order and pay it to the courts? also will they get their money first and then the rest of the creditors or is the frozen money get divided up equally? There is not enough to pay this lawyer anyway, maybe 2/3 of their fake bill (approx $20k) Im trying to have their bill assessed but the judge said I need to pay the money into the courts first. Thank you
Hi David. Yes, legal bills are included in a proposal or bankruptcy filing. Your trustee can explain in more detail the impacts in your current situation.
I was wondering my mom an elderly lady on a set income pension. My dad passed away suddenly and she has been having hardship, she decided to sell her home prior to that she signed a new build contract. Unfortunately, due to the current circumstances she wasn’t able to sell
her home therefore, she canceled her new build (many times). Now the contractor is suing my mom for damages of $400k!? We just received the SOC. if my mom claims consumer proposal or bankruptcy would this civil law suit get discharged?! She doesn’t have money to pay for lawyers and the proceeding that will occur. Your input and help Is much appreciated.
Hi Connnie. A consumer proposal can only be filed for debts of $250,000 or lower, but she could file a bankruptcy to discharge the civil lawsuit. Your mother should either discuss this with a lawyer, or meet with a licensed insolvency trustee to review her situation.
We currently have a lien on our property due to a judgement passed in small claims court in relation to an amount owing in credit card debt.
If we file a consumer proposal, will the lien be immediately removed or does it remain until the entire co sumer proposal is completed?
We are in a vicious cycle of being unable to sell our home due to the lien, yet in order to pay the debt owing we need to access our home equity.
We are also concerned that our bank will not renew our existing mortgage due to the lien? It should be noted that we have never missed a single mortgage payment in over 40 years and we have been with the same bank for all our mortgages.
Once you file your consumer proposal the Judgment may no longer be enforced, but they are not legally required to remove it until the proposal has been paid in full. What normally happens in these cases is you provide an undertaking to pay out the proposal in full from the house proceeds and the lien holder then removes the lien so the sale may proceed. If they do not remove the lien then on closing the amount of the line will be paid to the Sheriff. The Sheriff will then pay those funds to your trustee because of the proposal, then your trustee will send the funds to you as they are only allowed to keep them if you authorize them to. It is important that the Sheriff’s office and your trustee be put on notice BEFORE the deal closes so everyone can be warned about what is happening.
Mortgage companies do not usually refuse to renew due to a judgment or lien as long as the mortgage company is fully secured (ie not at risk of losing money).