A person or a corporation may become bankrupt in one of three ways: (1) voluntarily (by making an assignment in bankruptcy), (2) involuntarily (by being petitioned into bankruptcy by one or more creditors), or (3) through an uncessessful commercial proposal.
Meaning of going bankrupt?
Bankruptcy is an official formal legal status under the Canada Bankruptcy and Insolvency Act ["BIA"]. A debtor remains in bankruptcy until his or her discharge.Right away upon the bankruptcy of the debtor, all proceedings by unsecured creditors against the bankrupt are stopped. The purpose here is to prevent any creditor from obtaining an advantage or preference against the general body of creditors as represented by the trustee, and to avoid the trustee from being compelled to dissipate the assets of the estate through defence of multiple legal proceedings in different meetings.
No creditor may commence or continue any law suit, execution, garnishment, or other proceeding against the debtor [ss. 69.3 and 69.4 of the BIA], except with the permission of the bankruptcy court. This is referred to as a "stay of proceedings". Bankruptcy does not stop or stay criminal investigations or matters; secured creditors can also implement their security against the bankrupt. No court's permission is needed for repossessing their collateral after bankruptcy.
Once the debtor obtains an order of discharge, the order operates to discharge the debtor from all claims provable in the bankruptcy, except for some types of claims (such as debts arising out of fraudulent misrepresentation).
Bankruptcy Administration
The Bankruptcy and Insolvency Act is administered by trustees in bankruptcy, as well as by the Superintendent of Bankruptcy, Official Receivers, and Registrars and Judges of the Bankruptcy Court. The trustee in bankruptcy is an individual person or corporation that is licensed by the Superintendent of Bankruptcy under the Department of Industry of the Federal government of Canada to carry on the bankruptcy administration of liquidating a debtor's assets, make the distribution to the creditors and helps the debtor through this cleansing process. The trustee in bankruptcy acquires title to the bankrupt's property, administers the estate, communicates with creditors, reports to the Superintendent and to the Court, pays out dividends, and has a dual responsibility as both the bankrupt's representative and as the representative of all the general creditors to the extent that he or she can act on their behalf against the bankrupt. The bankrupt chooses the trustee, pays for his or her services, and always meets with the trustee on several occasions before creditors enter the bankruptcy process.
What if you have started a lawsuit or want to start a lawsuit but then go bankrupt in Canada?
If you turn to s. 71 of the Canada Bankruptcy and Insolvency Act, you'll see that, when someone becomes bankrupt, they "cease to have any capacity to dispose of or otherwise deal with their property". Significantly ,such capacity immediately passes to and vests in the Trustee responsible for the bankrupt's estate. Also, s. 72 provides that the Trustee is entitled "to avail himself of all rights and remedies provided by that law or statute as supplementary to and in addition to the rights and remedies provided by this Act".
It's basically stating that a bankrupt loses their rights to commence or keep lawsuits dealing with their property. And, according to s. 2 of the Act, "property":
"means any type of property, whether situated in Canada or elsewhere, and contains money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property". It doesn't include the right to sue for pain and suffering.
So at the end of the day, a bankrupt generally losses his or her ability to start or maintain a lawsuit that involves their economic rights.
