Stay of proceedings: how a consumer proposal or bankruptcy stops collections and wage garnishment

When a consumer proposal (BIA s. 69.2) or a bankruptcy (BIA s. 69.3) is filed, an automatic stay of proceedings stops unsecured creditors from suing you, continuing lawsuits, garnishing wages or bank accounts, or otherwise collecting the debts covered. Interest on those unsecured debts also stops for the purposes of the process. The stay does not stop secured creditors from enforcing their security (for example repossessing a car if you stop paying the loan), and it does not stop support enforcement. Once the trustee notifies them, employers and banks must stop garnishments. If a creditor keeps collecting, send them the trustee's notice and tell the trustee.

Part of debt relief mistakes and official sources. General information, not legal advice.

What the stay stops and what it does not

Action by a creditor	Stopped after filing?
Collection calls and letters on included unsecured debts	Yes
New lawsuits on unsecured debts	Yes
Existing lawsuits on unsecured debts	Yes, stayed
Wage garnishment by unsecured creditors	Yes, once the employer is notified
Bank account garnishment by unsecured creditors	Yes
CRA collection on included tax debts	Yes, generally
Enforcement of a mortgage or car loan if you default	No: secured creditors can enforce their security
Child and spousal support enforcement	No
Court fines	Not released; enforcement varies; ask the trustee
Utilities cutting service	A public utility cannot discontinue service only because of the filing, your insolvency or unpaid bills from before the filing (BIA s. 66.34(3) for proposals, s. 84.2(3) for bankruptcy), but it can require cash payment for new service and can ask the court for relief in cases of significant financial hardship

How long it lasts

Consumer proposal. The stay starts on filing and lasts while the proposal is in good standing. If the proposal is deemed annulled (three missed monthly payments) or rejected, the stay ends; see default and annulment.
Bankruptcy. The stay starts on the date of bankruptcy and continues until discharge for released debts. After discharge, released debts can no longer be collected at all.

Wage garnishment: before and after filing

Before filing, provincial law limits how much of your wages a creditor can garnish. In Ontario, the Wages Act exempts 80% of wages from seizure or garnishment for ordinary debts, and 50% when an order for support is being enforced, subject to a judge varying the exemption. Other provinces use different formulas. In Quebec, the voluntary deposit is an alternative that stops wage seizure without an insolvency filing; see Quebec specifics.

Illustrative example. Chris in Ontario earns $3,000 net every two weeks. A creditor with a judgment garnishes 20%: $600 a paycheque. He files a consumer proposal on a Monday. The trustee sends notice to the court office and the employer. Once the employer receives the notice, garnishment stops. Money already paid into court before filing may be dealt with by the trustee; ask about it. Over a month, Chris keeps about $1,200 that would otherwise have been garnished.

Secured creditors

A mortgage lender or car lender holds security. The stay generally does not prevent them from enforcing it if you fall into arrears, although bankruptcy law gives the trustee some rights to inspect and deal with the property. In practice:

Keep paying the mortgage and car loan if you want to keep the property.
Talk to the lender if you are already in arrears; a proposal does not cure arrears.
If you give the property up, any shortfall becomes an unsecured debt in the process.

See home equity and cars.

Co-signers and guarantors

The stay protects you, not a co-signer. A creditor can pursue a co-signer or guarantor for the full debt. Discuss this with the trustee and the co-signer before filing.

When collection continues after filing

Tell the creditor or collector that you have filed a consumer proposal or bankruptcy, and give the trustee's name, file number and contact details.
Send a copy of the trustee's notice if requested.
Tell the trustee, who can contact the creditor.
Keep records of calls and letters.
Complain to the provincial regulator of collection agencies if a licensed collector continues; see the official sources.

Collection agencies are licensed provincially. Continuing to collect a stayed debt can be a breach of the BIA and of provincial collection rules.

Before the stay: emergency situations

If you face a court date, an imminent garnishment or a bank freeze, tell the trustee at the first meeting. Filing can be done quickly once documents are ready. Do not wait for the garnishment to start; prepare with the first meeting checklist.

Frequently asked questions

Does a debt management plan create a stay?

No. A DMP is voluntary and creditors can still sue. Only BIA filings (and, within their scope, provincial programs such as OPD or Quebec's voluntary deposit) give legal protection.

Will the CRA stop collecting?

For tax debts included in the proposal or bankruptcy, the CRA is bound by the stay like other unsecured creditors, generally. Source deductions and some trust amounts are treated differently.

Can my landlord evict me because I filed?

Filing alone is not grounds for eviction. Rent arrears before filing are unsecured debts; you must keep paying rent after filing.

Does the stay stop a payday lender's pre-authorized debit?

The lender should stop, but cancel the pre-authorized debit with your bank as well, and tell the trustee.

Sources

Justice Laws Website — BIA ss. 69–69.6 (stays of proceedings), s. 69.41 (support), s. 178
Ontario e-Laws — Wages Act, R.S.O. 1990, c. W.1, s. 7
Office of the Superintendent of Bankruptcy — what happens after you file
Financial Consumer Agency of Canada — dealing with debt collectors