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Stay of legal proceedings against a bankrupt

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Civil and commercial litigation

Bankruptcy is often the last resort for whoever is indebted to such an extent that the timely payment of his or her debts becomes virtually impossible.

What Can Federal Legislation Do?

With this in mind, federal legislation relating to bankruptcy and insolvency will often grant some measure of protection against a bankrupt’s creditors, namely in the form a suspension (or stay) of judicial proceedings. Thus, in general, bankruptcy or legal assignment of property filed with the official receiver will cause a stay of civil judicial proceedings against a bankrupt. In other words, all active civil litigation will be automatically stayed after a formal notice to that effect is filed into the court record, pursuant to section 69 of the Bankruptcy and Insolvency Act.

In that regard, it is also important to note that in some cases, the court may, upon request, waive the stay of proceedings and allow creditors to continue their claim. However, such permissions are rare and are mainly granted by the court (with the appropriate caveats if necessary) if a contrary decision would likely cause serious harm to the creditor concerned. For those of you that are interested, there is abundant case law on this issue.

It should therefore be reiterated and noted that the legislator has provided several statutory protection mechanisms that affect both debtors and creditors in the context of bankruptcy or insolvency. Consequently, it is paramount that these be known, understood and, most importantly, properly explored with your attorney before any decision relating to bankruptcy is made.

Harry Karavitis, Lawyer
Alepin Gauthier avocats inc.

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