Yes and no. We will deal with the yes part first:
There is an automatic feature of bankruptcy law in Canada that puts in place something called a “Stay of Proceedings” immediately upon a person filing an assignment in bankruptcy or a consumer proposal. This isn’t something you have to ask the Court to do for you; it is literally an automatic feature of the law.
The way it works is simple: once you file either for bankruptcy or a consumer proposal your trustee will send a legal notice (the actual Stay of Proceedings) to any person or business currently engaged in legal action against you. It doesn’t matter if you have only just received the Court papers informing you of the lawsuit, or if the creditor has already been to Court and has an Order to garnishee you wages. The Stay is automatic and stops the process immediately. If someone tries to start a legal action after you have filed, the Stay stops them. If you receive notice of the action you inform your trustee and they will send out the Stay to stop things from progressing.
The Stay is also sent to the Court that is handling the legal action and if the creditor has already obtained a Judgment against you, a copy is sent to your employer as well to stop the garnishee. Your trustee has to send a copy to employer in order to stop the garnishee. The Stay provides your employer with the legal obligation to stop taking money from your pay cheque; without the Stay the garnishee will continue.
That leads us to the most common difficulty with the Stay of Proceedings; many (most) payroll people have never seen this type of document before so it is not uncommon for them to become confused and ask for confirmation from the creditor that the garnishee must stop. It doesn’t happen a lot, but there are times when a trustee must threaten legal action against an employer (or a creditor) for failing to abide by a Stay of Proceedings. If this happens to you, keep in mind that the problem isn’t because of what your trustee is doing, rather it is because someone at your work place is unfamiliar with bankruptcy law.
And now for the no side:
The Stay of Proceedings is only effective against debts that are dischargeable (can be eliminated) by bankruptcy law. Things like child support, spousal support, restitution orders, repayment of debts based on fraud or misrepresentation and some others are not stopped. To see a complete list of these debts, take a look at Section 178 of the Bankruptcy and Insolvency Act of Canada.
Further the automatic staying provisions of bankruptcy law can be lifted. Your creditors have the right to apply to the Court and ask that they be allowed to continue a specific legal action against you if they can demonstrate to the Court that there are reasonable grounds to do so. A good example of this might be a debt that was incurred as a result of fraud or misrepresentation. Let’s say you applied to the bank for a loan to buy a car and instead you took the money to a casino (or took a trip or gave it to your sister). This sounds like a case where the bank might argue that you misrepresented your intentions and therefore the bank might apply to the Court for permission to sue you even though you have filed for bankruptcy.
Further, if someone has started a large civil suit against you and you think that you may file for bankruptcy to stop them, well, you need to think again. If someone really wants their day in Court and they are willing to pay for it, then after you file for bankruptcy they may apply to the Court to have the Stay lifted. The application takes the form of hearing so that you can present your arguments for not allowing the stay to be lifted. If you don’t attend the hearing (and that usually means hiring a lawyer to assist you; this is not something your trustee can do) the Court may simply allow the Stay to be lifted then you are back where you started.
If you are being threatened with a wage garnishee or a lawsuit by a creditor, or if you already been sued and you need the garnishee to stop you should speak to a trustee directly. They will want to see whatever documents you have regarding the legal action so that your trustee can determine if the Stay of Proceedings will help you solve your financial problems.
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