Student Bankruptcy: Automatic Stay of Proceedings

What You Should Know If You Cannot Pay Your Student Loans

It is very common for people coming out of university or community college to be burdened by significant debt levels. A significant amount of this debt might be for student loans and in some instances other types of unsecured consumer debt—primarily credit card debt.

The purpose of this article is to address some of the key issues facing people who owe a significant amount of money because of student loans.


This is the Third Article In a Series of Four About Student Bankruptcy:

To find out more about Student Loan Debt and Automatic Stay of Proceedings read on, you can also skip to another section by clicking one of the links below.

  1. Background Information
  2. Student loan debt and waiting periods
  3. Automatic stay of proceedings
  4. Recommended Strategies and Tactics

Part Three: Automatic Stay of Proceedings

When a debtor files for personal bankruptcy or makes a consumer proposal—typically within two business days—the debtor’s Licensed Insolvency Trustee will receive a Certificate of Authority. On the date that this Certificate of Authority is issued by the Bankruptcy Court an automatic stay of proceedings arises with respect to all of the debtor’s unsecured creditors. This means that any and all lawsuits and causes of actions against the debtor, in connection with the debtor’s unsecured debts, including student loan debts, are stayed. It is important to note that no stay of proceedings arise with respect to certain categories of debts—the most important category being secured debts.

The automatic stay of proceedings remains in place unless and until a particular event takes place which terminates it.

Events Terminating an Automatic Stay of Proceedings

BankruptcyWhen the bankrupt obtains a discharge
Consumer Proposal Consumer proposal is rejected by debtor’s creditors Consumer proposal is annulled because debtor is 90 days in default making required payments under consumer proposal One hundred percent of monies owing under a consumer proposal have been made

The automatic stay of proceedings is very important. During the life of the stay of proceedings an unsecured creditor, including National Student Loans or a provincial student loan lender cannot sue a debtor or do a wage garnishment. A consumer who is not entitled to a discharge because they did not satisfy the seven-year waiting period is entitled to some relief in connection with respect to their student loans because the automatic stay of proceedings—particularly in the case of a consumer proposal—will frustrate a creditor’s ability to recover monies from a debtor with unpaid student loans.


Continue to the Next Article “Recommended Strategies and Tactics”

If you want to learn more about how to deal with your student loan debt then you should speak with a Licensed Insolvency Trustee.

You can also skip to any one of the article sections below to continue reading or re-cap on any information covered in this series of articles;

  1. Background Information
  2. Student loan debt and waiting periods
  3. Automatic stay of proceedings
  4. Recommended Strategies and Tactics