If the person you are suing in Calgary files for bankruptcy, federal law imposes an immediate “Stay of Proceedings.” This means your lawsuit is legally frozen, and you must file a Proof of Claim with their Licensed Insolvency Trustee to receive any potential settlement.
Spending months preparing a lawsuit at the Calgary Courts Centre only to discover the defendant has filed for bankruptcy is incredibly frustrating. 💰 Under the federal Bankruptcy and Insolvency Act (BIA), once a person or business officially files for bankruptcy or submits a Consumer Proposal, an automatic legal shield goes into effect. This mechanism, known as a Stay of Proceedings, instantly stops almost all civil lawsuits, wage garnishments, and collection efforts across Canada.
As a creditor, you cannot simply ignore the bankruptcy and ask the Alberta judge to give you a judgment anyway. ⚠ Continuing to pursue the debt outside the bankruptcy process can result in severe legal penalties. Instead, you must shift your focus from the local civil court system to the federal insolvency system, often with the guidance of a civil litigation lawyer.
Step-by-Step Process in Calgary, Alberta
When a debtor in Calgary, or anywhere else in Alberta, files for bankruptcy, the process is handled by a Licensed Insolvency Trustee (LIT). 📍 You will no longer deal directly with the debtor or the provincial court clerks regarding this specific debt.
Step 1: Stop All Legal Action Immediately
The moment you receive official notice that the defendant has filed for bankruptcy, you must halt your lawsuit. If you have a garnishment order active through a Civil Enforcement Agency, you must inform them to stop collecting. 📄 The court will not allow your lawsuit to proceed, and any money collected after the bankruptcy date usually must be returned.
Step 2: Review the Trustee’s Information Package
Within a few weeks of the filing, the debtor’s LIT will mail a package to all known creditors. This package contains crucial details about the debtor’s financial situation, a list of their assets, and the date of the first creditors’ meeting. 🏢 If you know the debtor filed but you did not receive a package, contact the Office of the Superintendent of Bankruptcy (OSB) to find out who their trustee is.
Step 3: File a Proof of Claim
To have any chance of recovering your money, you must complete a “Proof of Claim” form and submit it to the trustee. You will need to attach evidence of the debt, such as your Statement of Claim, unpaid invoices, or a bounced cheque. 📝 The trustee will review your claim and, if there are any funds left after secured creditors (like banks) are paid, you will receive a proportionate dividend.
How Much Does it Cost in Calgary?
Dealing with a bankrupt defendant changes your financial strategy from aggressive collection to loss mitigation. 💲 Here are the typical costs associated with this process in CAD as of May 2026:
- Filing a Proof of Claim: It is completely free to submit this document to the Licensed Insolvency Trustee.
- Lawyer Consultation: If the debt is large, having a lawyer review the bankruptcy package to check for fraud or hidden assets generally costs between $300 and $600 CAD.
- Lost Court Costs: Unfortunately, the filing fees and process server costs you already paid for your lawsuit are usually added to the unsecured debt and discharged in the bankruptcy.
| Proof of Claim | Mandatory to receive bankruptcy dividends | $0 CAD |
| Legal Assessment | Optional review for fraud or secured claims | $300 – $600 CAD |
How Long Does the Process Take?
Resolving a debt through bankruptcy is a slow process. ⏱ A standard first-time bankruptcy in Canada typically takes 9 to 21 months before the debtor is formally discharged. If there are assets to be sold, it can take 1 to 2 years before the trustee distributes any final dividend cheques to the creditors.
Frequently Asked Questions (FAQ)
Can I continue the lawsuit if the debt was caused by fraud?
Yes, but you must apply to the Court of King’s Bench to have the Stay of Proceedings lifted. Under Section 178 of the BIA, debts arising from fraud or embezzlement are generally not wiped out by bankruptcy.
What happens to my lawsuit if they file a Consumer Proposal instead?
A Consumer Proposal also triggers a Stay of Proceedings. Your lawsuit stops, and you will be asked to vote on the proposal. If the majority of creditors accept it, you are legally bound by the new payment terms.
Do I have to attend the creditors’ meeting?
No, attending the meeting of creditors is entirely optional. Most unsecured creditors do not attend unless they have specific questions or suspect the debtor is hiding assets.
Will I get all my money back?
In most bankruptcies, unsecured creditors receive only a small fraction of what they are owed (often less than 10 cents on the dollar), and sometimes they receive nothing at all if there are no seizable assets.
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