4.34: Stay of proceedings on transfer or transmission of interest
12.35: Operation of rule 4.34 under this Part

Case Summary

Ms. Jesson applied to the Court to lift a stay in place pursuant to section 69.3 of the Bankruptcy and Insolvency Act, RSC, 1985, c. B-3 (the “BIA”) and Rule 4.34(1) that resulted from the bankruptcy of Mr. Jesson. The two parties had cohabited, married, separated and filed for divorce. The day before an Application for retroactive child support and ongoing child and spousal support was to be heard, Mr. Jesson filed an assignment in bankruptcy.

Justice Yungwirth found that section 69.3 of the BIA did not apply to Ms. Jesson’s claims in the divorce and matrimonial property proceeding and applied only to claims provable in bankruptcy. Ms. Jesson’s child support claims were not “provable” in bankruptcy because the existing Order was not made until after the date of bankruptcy. Support claims could be prosecuted against a bankrupt without leave. Her Ladyship found that the child support payments ordered should be factored into Mr. Jesson’s monthly expenses when the Trustee in Bankruptcy calculated Mr. Jesson’s monthly surplus, however, the child support arrears could only be enforced against exempt assets of the bankrupt and the bankrupt’s income in excess of payments to the estate.

Rule 4.34 operated to stay Ms. Jesson’s Action as a result of the bankruptcy. Pursuant to Rule 12.35, Rule 4.34 did not apply to stay a proceeding under the Divorce Act, RSC 1985, c-3 and only applied to the matrimonial property proceeding. Her Ladyship noted that there was no test to apply when considering an Application made pursuant to Rule 4.34(2) to lift a stay, and that this was not an instance where there was a good reason not to lift the stay — a spouse should not be able to use the bankruptcy system to stall and prevent determination of matrimonial property entitlements. Accordingly, Justice Yungwirth ordered that the divorce and matrimonial proceedings continue using the process outlined in section 81 of the BIA.

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