Creditors can take legal action against you if you don’t pay them. If they sue you in court and win their case, you’ll have to obey the judgment or risk further legal punishment. Even if you’re struggling financially and experiencing severe distress, the order is still enforceable.
However, there’s a way to stop creditor actions dead in their tracks. The solution is to obtain a stay of proceedings. If you’re battling overwhelming debts, a stay of proceedings will provide you with immediate relief from creditor actions, including wage garnishments and bank account freezes. As a result, you’ll have the breathing room you need to concentrate on finding a solution for your debt problems.
To get a stay of proceedings, you must file for bankruptcy or a consumer proposal. In this guide, we’ll explore what a stay of proceedings is, how it works, and how it can help you take back control of your finances.
What is a stay of proceedings?
A stay of proceedings is a court order that stops creditors from pursuing you for money you owe them. It prevents them from pursuing legal action against you to collect unpaid debts or demand payment through collection calls, emails, and similar tactics.
How does a stay of proceedings work?
You can acquire a stay of proceedings automatically after filing for bankruptcy or submitting a consumer proposal. Your Licensed Insolvency Trustee (LIT) will file all the paperwork needed with the court and the Office of the Superintendent of Bankruptcy of Canada (OSB). Once your application is approved, the court will grant you a stay of proceedings. At this point, your creditors are barred from chasing you for payment on your debts.
Does a stay of proceedings stop existing lawsuits?
What about existing lawsuits and court orders that are working against you? The good news is that a stay of proceedings doesn’t simply prevent new legal actions—it also stops those already in progress.
Court hearings and trials won’t take place as scheduled. Recent court orders will no longer be enforceable. Essentially, every aspect of the debt collection process gets put on hold, giving you a much-deserved break from the stress and anxiety of dealing with aggressive creditors.
Creditor actions that a stay of proceedings will stop
Once you acquire a stay of proceedings, creditors cannot:
- File lawsuits against you
- Freeze or seize money from your bank account
- Garnish your wages
- Cut off services for unpaid bills (such as utilities)
- Demand payment through collection calls, emails, or letters
- Seize your assets (if they’ve obtained a Writ of Seizure)
Creditor Actions that a stay of proceedings won’t stop
As beneficial as a stay of proceedings is, it doesn’t protect you from all forms of debt collection or legal consequences. So it’s crucial to understand its limitations before considering bankruptcy or a consumer proposal. A stay of proceedings won’t stop:
Secured creditors. Secured creditors, such as mortgage lenders and auto loan companies, can still chase you for payment. These lenders have the right to seize assets that serve as security for the loan. For example, let’s assume you fall behind on mortgage payments. In that case, your lender can initiate a power of sale or foreclose on your home and sell it to pay off your debt.
Child support and spousal support payments. While these are technically unsecured debts, you cannot erase them through a bankruptcy or consumer proposal. As per the Bankruptcy and Insolvency Act (BIA), you’re still responsible for these financial obligations.
How soon does a stay of proceedings start?
A stay of proceedings comes into effect immediately after your Licensed Insolvency Trustee (LIT) files your bankruptcy or proposal with the court and OSB. Once filed, your LIT will notify your unsecured creditors, informing them of your bankruptcy or proposal and instructing them to cease all collection efforts. From this point forward, they can no longer contact you; they will deal exclusively with your LIT throughout the insolvency proceeding.
Some creditors may take a while to receive the stay of proceedings and understand their responsibilities under the order. However, they must legally halt all collection actions and lawsuits immediately. Unfortunately, some may attempt to seize money from you until the last minute, especially if they have frozen your bank account. They may even continue their collection measures, despite being legally required to stop.
Fortunately, there are steps you can take in your first week of bankruptcy or proposal to lower the risk of these incidents. However, if your creditors continue to cause you trouble, contact your LIT right away so they can address the issue.
How long does a stay of proceedings last?
A stay of proceedings in bankruptcy lasts until you get discharged or your LIT gets discharged. This process lasts between 9 and 21 months for a first-time bankruptcy. In a consumer proposal, a stay of proceedings stays in effect until:
- You complete the terms of your consumer proposal;
- Your unsecured creditors reject your proposal; or,
- You default on your proposal, meaning you fall behind on more than three payments and it is deemed annulled.
Does a stay of proceedings stop the CRA?
Is the Canada Revenue Agency (CRA) chasing you for unpaid taxes? The good news is that a stay of proceedings halts collection actions by the CRA. Bankruptcy law in Canada treats the tax agency like any other unsecured creditor, so it must legally stop all efforts to recover your tax debt.
However, if the CRA has already placed a lien on your home, a stay of proceedings won’t reverse it. Unlike a typical creditor, the CRA doesn’t need a court order to garnish your wages or take other legal action against you. That’s why it’s crucial to act fast if you owe money to the CRA and are unable to pay them. By filing for bankruptcy or a consumer proposal, you’ll immediately benefit from the creditor protection that a stay of proceedings offers.
Can a creditor ask the court to remove a stay of proceedings?
Yes, a creditor can request the court to remove a stay of proceedings after a debtor has declared bankruptcy or filed a consumer proposal. However, this is an uncommon occurrence and is only allowed under special circumstances.
For example, the court may lift a stay of proceedings if the order causes significant financial harm to the creditor. They may also lift it if there’s evidence of fraud, embezzlement, or misconduct on the part of the debtor.
Ultimately, it’s up to the creditor to convince the judge to reverse a stay of proceedings after it’s been granted—and doing so is no easy feat.
Do any other debt relief options offer a stay of proceedings?
No, only debt relief programs under the Bankruptcy and Insolvency Act (BIA) grant you a stay of proceedings. These include bankruptcies, consumer proposals, and Division 1 proposals. Debt management plans, private debt settlement, debt consolidation loan, and other informal and unregulated options don’t provide this type of creditor protection.
Contact A TrusteeThe bottom line on a stay of proceedings in Canada
A stay of proceedings is a powerful tool to protect yourself from aggressive creditors. It stops wage garnishments, bank account freezes, and other legal actions. And it will spare you from those intrusive collection calls as well. It won’t stop every type of creditor, but it can provide you with the relief and breathing room when you need it the most. From there, you can focus on tackling your debt problems head-on.
If you’re struggling with crushing debts and facing pressure from creditors, book a free consultation with David Sklar & Associates. Our experienced and compassionate team of Licensed Insolvency Trustees have been helping individuals across Ontario get out of debt for over 25 years. We can help you find the best way to get lasting debt relief, so you can build the financial future you deserve.
