Credit: Sora Shimazaki via Pexels
You owe money to several creditors, and they’re getting impatient. After giving you late fees, sending you notifications and hiring collection agencies to contact you, they’ve decided to escalate the situation. They’re going to take legal action against you.
Creditors have the right to take legal action against you in order to get what they’re owed. If the court approves the request and issues a judgement, you won’t have much of a choice: you’ll have to obey this judgement or risk further legal punishment. Even if you’re struggling financially, the order will still be enforced.
However, there is a way that you can stop this enforcement. It’s called a stay of proceedings. Read ahead to find out what a stay of proceedings is and how David Sklar & Associates can help.
What Is a Stay of Proceedings?
A stay of proceedings is a court ruling that puts a legal action taken against you on hold. Filed documents will not move forward through the court. Meetings and trials will not take place. Court orders will not be enforced. Essentially, all elements of the legal process are put on hold.
A stay of proceedings doesn’t just pause a legal action that is currently in motion. It prevents a new one from being taken against you. While the ruling is still in effect, you’re protected from this consequence. Creditors can’t threaten to take legal action against you since it is impossible for them to enforce.
Read our blog What Legal Actions Can Creditors Take When You Don’t Pay Them? to see what your creditors are capable of.
When Does the Stay of Proceedings Start?
The stay of proceedings protection will automatically go into effect when you file a consumer proposal, a division one proposal or bankruptcy. The stay of proceedings is in force until you successfully complete your insolvency proceeding, at which time your debts are discharged and are no longer legally enforceable under law.
In other words, you do not need to worry about legal actions restarting the minute that you receive a discharge. Consumer proposals, division one proposals and bankruptcies resolve the issues that push creditors to take legal action in the first place. They won’t have any legitimate reason to take you to court since your debts are considered paid in full. You have a clean slate.
Are There Other Options?
Only formal proceedings under the Bankruptcy and Insolvency Act, such as consumer proposals, division one proposals and bankruptcies or other Federal legislation are the debt relief processes that provide a stay of proceedings. Debt management plans, debt settlements, debt consolidation loans and other informal, unregulated debt solutions cannot offer this type of creditor protection.
There is one thing you can do before you file an insolvency proceeding. You can try to contact your creditor and strike a deal with them in hopes that they will drop their plans for legal action against you. You could suggest a new payment plan or deadline extension. This could temporarily appease your creditor.
If your creditor accepts this deal, you are not off the hook. This is not a legally binding agreement, and if they change their mind or if you don’t follow through on your promise, they could go forward with the same legal action or take on a different kind.
Insolvency Proceedings That You Can Try
A consumer proposal is a legally binding agreement made between you and your unsecured creditors, allowing you to repay a portion of your debts. You have a maximum of five years to complete this repayment. Once you’ve finished your payment schedule and met the terms of your agreement, all of your debts to these unsecured creditors are considered paid in full.
The moment that your proposal goes into effect, you will be protected from current and future plans to take legal action against you. The proposal will also stop creditors and hired bill collectors from contacting you about your unsecured debts. If they don’t follow these rules, they will violate the new Collection and Debt Settlement Services Act.
These features of your consumer proposal can make your debt repayment a lot less stressful. You don’t have to worry about collection calls or letters. You don’t have to worry about legal actions like wage garnishment or freezing of bank accounts. You can just stick to your approved payment schedule and get rid of your debt once and for all.
If you think that a consumer proposal is the right debt relief strategy for you, you should book a consultation at David Sklar & Associates. One of our licensed insolvency trustees will assess your finances to see whether it’s your best option. If they agree, they will act as your consumer proposal administrator and get you started on the process.
Division One Proposal
A consumer proposal has a cap for an applicant’s total debt. In order to qualify, you must have $250,000 (not including the mortgage on your primary residence) or less in debt. If you exceed that cap, you can apply for a division one proposal or personal bankruptcy.
A division one proposal is very similar to a consumer proposal. It’s a legally binding agreement made between you and your unsecured creditors, allowing you to repay a portion of your debts. The process for this proposal is more Court driven and comes with stricter payment terms than a consumer proposal.
If you think that you exceed the allowable debt for a consumer proposal, talk to a licensed insolvency trustee about whether a division one proposal is the right option for you.
Personal bankruptcy is usually considered your final option for insolvency proceedings. When you file for bankruptcy in Ontario, you are declaring to the courts and your creditors that you are unable to repay your debts.
Similar to a consumer proposal or division one proposal, you will have to make repayments to your creditors through a licensed insolvency trustee. However, the payment period will be much shorter. If it’s your first time filing for personal bankruptcy, you may receive an automatic discharge after nine months.
Your trustee will also sell or realise the equity in your assets in an effort to pay your creditors what they are owed. Some of your assets might be exempt from this step of this process. You can check the Bankruptcy Laws in Ontario to see the assets that you can keep.
One of the reasons why licensed insolvency trustees recommend trying a consumer proposal before bankruptcy is that a proposal will protect your assets from creditors — all of them. Your trustee will not have to sell or realise the equity in anything you own. Your home, your vehicle and all of your investments will go untouched.
If you think that personal bankruptcy is your only option, or if you are unsure what option is best for you, talk to a licensed insolvency trustee first. They will let you know what is the best course of action.
Exceptions for Stays of Proceedings
A stay of proceedings can’t protect you from all types of legal action put against you. Court orders related to the following debts are exempt from this protection:
- Child support
- Spousal support
Filing for a consumer proposal, division one proposal or bankruptcy will not stop court orders for these exceptions from going through. You will still have to make these payments or face further consequences.
Creditors can make applications to the Bankruptcy Court to have the stay of proceedings lifted, but there are very strict requirements to receive approval and usually it is only lifted for the purposes of establishing whether or not a debt exists, such as in a car accident, where there is no direct evidence of a specified amount owing. Once the amount of debt is determined, the stay of proceedings is generally reinstated, preventing any enforcement of the judgement.
Ending a Stay of Proceedings
If you fall behind three months’ worth of consumer proposal payments without making an amendment, your consumer proposal will be annulled. This is uncommon, but it can happen. Annulment of your proposal will immediately eliminate all of the benefits and legal protections that it offers you, including your stay of proceedings.
If unsecured creditors undertook legal action against you, that action could recommence with an annulled proposal. If they were planning to undertake legal action but didn’t because of the proposal, they can go forward with those plans now that the barrier isn’t stopping them.
This is why a licensed insolvency trustee might recommend that you file for personal bankruptcy to resolve your debt problems after annulment of a consumer proposal. While the bankruptcy process doesn’t carry all of the benefits of a consumer proposal, it at least offers a stay of proceedings while you tackle your financial problems.
A stay of proceedings is the best way to stop your creditors from taking legal action against you. If you have serious debt and you need protection, come to David Sklar & Associates. We can help.