Can I Pursue an Undischarged Bankrupt For Collection?

Businessman holding a blank notepad. Room for you text.Yes, but not until the Licensed Insolvency Trustee (“LIT”) is discharged AND the bankrupt is not discharged.

When a person declares bankruptcy, there is a Stay of Proceedings that prevents creditors from pursuing collection of their debt.  The Stay is automatic.  It is not a Court Order and doesn’t have to be applied for.  It is set out in the Bankruptcy and Insolvency Act.

The Stay of Proceedings protects the debtor from any collection activity by his unsecured creditors and allows the LIT to administer the estate without creditor interference.  When the debtor is discharged all his unsecured debts, with a few exceptions, are erased.

In some cases the debtor does not obtain a discharge from their bankruptcy.  This is usually due to the debtor failing to perform the duties imposed upon them, or hasn’t paid the estate pursuant to a Mediation Agreement or Court Order.

Once the LIT is certain the debtor is not going to honour his obligations, the LIT would typically proceed to close its file and seek their own discharge from the bankruptcy.

At this point the Stay of Proceedings is lifted and the debtor’s creditors can pursue him for debt collection just as though he was never in bankruptcy.  However, there is nothing stopping the debtor from then going back to the LIT to comply with their duties and seek their discharge.

This is why it is so important for debtors to obtain their discharge.  It’s not about getting onto bankruptcy, it’s about getting out.

Call us.  It’s not too late. (604) 605-3335.