What Is A Stay of Proceedings?

What Is A Stay of Proceedings?

A stay of proceedings basically means that creditors must cease all collection or legal proceedings against the debtor, including wage garnishments.   The purpose of the stay is to protect the assets of the bankrupt so the Trustee or Proposal Administrator can deal with them in an orderly fashion.

Under the Bankruptcy & Insolvency Act, a stay of proceedings is automatically in place when a debtor 1) files for bankruptcy, 2) makes a consumer proposalor 3)files a notice of intention (NOI) to make a proposal. Here is how the stay of proceedings applies in each scenario:

1.  BankruptcyOnce a bankruptcy has been filed, no creditor can seize the debtor’s property, start or proceed with any legal action, for the recovery of a claim provable in bankruptcy. The stay of proceedings does not prevent a secured creditor from dealing with his security. The stay is lifted on the date the Trustee is discharged and the creditor can continue their action if the debt was not extinguished by the bankruptcy.

2.  Consumer ProposalOnce a consumer proposal has been made, no creditor can seize the debtor’s property, start or proceed with any legal action, for the recovery of a claim provable in bankruptcy. The stay of proceedings does not prevent a secured creditor from dealing with his security. The stay is lifted when the Proposal has been withdrawn, refused, annulled or deemed annulled, or on the date the Proposal Administrator has been discharged . Creditors can continue their action if the debt was not discharged by the proposal.

3.  Filing a Notice of Intention (NOI) to Make a Proposal(typically for corporations)No creditor, unsecured or secured, can seize the debtor’s property, start or proceed with any legal action, for the recovery of a debt.   This allows the debtor time to prepare his proposal to creditors without the fear of legal action or asset seizure.

There are some exceptions to the above rules so we recommend meeting with a licensed Trustee in bankruptcy to review the details of your particular situation if one or more of your creditors has started legal proceedings.

For a free consultation over the phone or in person in Saint John, Moncton, Fredericton or Charlottetown, please contact us. Powell Associates Ltd. is a licensed insolvency trustee focused on providing debt settlement, proposal and bankruptcy solutions for individualsand businesses.