If you enter into a consumer proposal or bankruptcy in Canada, an automatic stay of proceedings takes effect, and you receive immediate creditor protection.

All creditor actions such as collection calls, legal action and wage garnishments will stop. Creditors and debt collection agencies cannot contact you or take further steps to recover the money owed. No additional interest can be applied to your debts.

Under the law, creditors must conform to these rules and can only be lifted by applying to the court.

How does a stay of proceedings work?

When you file for bankruptcy or a consumer proposal, a stay of proceedings commences, and your creditors are notified. Legal action from your creditors stops, including threats of pending and active legal action.

If one of your creditors is looking to take you to court for your debts, a stay of proceedings will protect you during the bankruptcy or consumer proposal process.

Your trustee can also contact your employer to lift any wage garnishments you may have.

How long does a stay of proceedings last?

A stay of proceedings will remain in place until the end of your bankruptcy or consumer proposal unless the creditor applies to have it lifted by the court.

This is a rare occurrence, and the creditor has to prove that court action is necessary or that they have valid grounds to do so. You can defend yourself in court to ensure a stay of proceedings remains in place.

Which debts are protected by a stay of proceedings?

If you file for bankruptcy or a consumer proposal, a stay of proceedings will cover most creditors for unsecured debts such as credit card debts, loans, tax debt, payday loans and other unsecured lines of credit.

Which debts are not protected by a stay of proceedings?

A stay of proceedings does not stop a court order for child or spousal support, nor does it cover debts that cannot be included in a bankruptcy or a consumer proposal, like mortgages, car loans, property taxes, court fines and student loans less than seven years old.

These surviving debts will continue to accrue interest throughout the bankruptcy or consumer proposal period.

Secured creditors in a stay of proceedings

Secured creditors can still seize assets you’ve provided as security if you cannot make your payments. For example, a creditor can still repossess your car if you do not keep up payments on a car loan.

Wrapping up

A stay of proceedings is one of the main benefits when declaring bankruptcy or entering a consumer proposal. A Licensed Insolvency Trustee will explain this process when you schedule a consultation.

If you want to learn more about resolving your debts, connect you with a trustee for a free consultation.

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