Can creditors sue me during a consumer proposal?

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Thinking about a consumer proposal in Canada? It can pause creditor actions like wage garnishments once approved by the OSB, but you must meet the terms. Some debts, like certain taxes or student loans, might still sneak through. Chat with a Licensed Insolvency Trustee to see how it fits your situation.

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Question

Can I be sued while in a consumer proposal? I’m curious if entering a consumer proposal shields me from legal actions like being sued. I’d feel a lot more secure knowing this is a possibility. What’s the truth about this situation?

From: Anonymous Question, Saskatchewan (SK)

Debt Insiders Answer

If you’re considering a consumer proposal in Canada, it’s good to know that it can offer you a shield from certain legal hassles. Once your proposal gets the green light from the Office of the Superintendent of Bankruptcy (OSB), it triggers a sort of protective bubble where creditors have to pause their legal hounds, like stopping wage garnishments or lawsuits, as long as you’re sticking to your proposal’s terms. But remember, this protection hinges on your proposal getting the thumbs up and you keeping your end of the bargain. If things go south—perhaps the proposal gets tossed out or you don’t hold up your end—creditors could restart their legal engines against you.

Even with this kind of backup, there are certain sticky situations where creditors can push through, especially with those pesky non-dischargeable debts, like some tax bills or student loans. So, while a consumer proposal can cover a lot of bases, it doesn’t slam the door shut on every possible lawsuit. It’s wise to have a chat with a Licensed Insolvency Trustee (LIT) to get the lowdown on your unique spot and fully grasp what kind of armor a consumer proposal can offer you.

From: Anonymous Question

Office of the Superintendent of Bankrupty (OSB) Answer

Yes, you can be shielded from legal actions, including being sued, while in a consumer proposal in Canada. According to the Bankruptcy and Insolvency Act (RSC 1985, c 11), specifically under section 69.3, when you file a consumer proposal, an automatic stay of proceedings is put in place which prohibits creditors from taking legal action against you for debts included in the proposal. This means creditors cannot initiate or continue lawsuits or other legal proceedings to collect debts while the proposal is active.

From: This answer is provided by scanning the OSB Bankruptcy & Insolvency Act and related directives

Related Questions

Here are the top 5 most frequently asked questions related to the protection from legal action while in a consumer proposal, formatted in markdown:

1. Can I be sued while in a consumer proposal?

• No, you cannot be sued by your unsecured creditors once the proposal is filed.

2. Do creditors stop calling me after filing a consumer proposal?

• Yes, creditors will stop calling you for payment once the proposal is filed.

3. Can creditors take legal action against me during a consumer proposal?

• No, unsecured creditors cannot take legal action against you to recover their debts during a consumer proposal.

4. Will a consumer proposal stop wage garnishments?

• Yes, most wage garnishments will stop immediately after the proposal is filed.

5. Can collection agencies contact me after filing a consumer proposal?

• No, collection agencies can no longer contact you for payment once the proposal is filed.

References

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