What can the Automatic Stay in bankruptcy do for you?

What can the Automatic Stay in bankruptcy do for you?

The Automatic Stay in bankruptcy is one of the fundamental debtor protections provided by the Bankruptcy Code. If creditors have been harassing you, this is the provision in the bankruptcy code that will give you immediate relief. Whether you are filing Chapter 13 or Chapter 7 bankruptcy, the Automatic Stay goes into effect immediately and automatically when you file for bankruptcy protection.  The automatic stay is a legal injunction that prohibits most creditors to stop taking legal action against you, and from even contacting you.

Q.     What benefits can Automatic Stay do for you?

A.     The Automatic Stay is a great tool for debtors because it serves to stop most contact and continuing collection activity from creditors on debts that are owed.  If you want to get creditors off your back, filing for bankruptcy and enacting the automatic stay is an effective means of doing so.  Once the automatic stay goes into effect, your creditors are not even allowed to call you or write you. Any communication they wish to have with you will have to go through your bankruptcy attorney.

In most situations, the Automatic Stay STOPS:

  • Foreclosure
  • Trustee Sale
  • Repossession
  • Wage garnishment or levies, even if garnishment orders are already in effect.
  • Creditor lawsuits
  • Creditor harassment
  • IRS Collection Activity
  • Any creditors (including collections agencies) from corresponding with you at all, including phone calls, letters, etc.

    Q.     Are there debts not affected by automatic stay?

    A.     The following debts are not affected by Automatic Stay:


  1. Certain tax proceedings. The IRS can still audit you, issue a tax deficiency notice, demand a tax return (which often leads to an audit), issue a tax assessment, or demand payment of such an assessment. However, the automatic stay does stop the IRS from issuing a tax lien or seizing your property or income.


  2. Support actions. A lawsuit against you seeking to establish paternity or collects child support or alimony will not stop by your filing for bankruptcy.


  3. Criminal proceedings. A criminal proceeding that can be broken down into criminal and debt components will be divided, and the criminal component is not affected by the automatic stay. For example, if you were convicted of writing a bad check, sentenced to community service, and ordered to pay a fine, your obligation to do community service won’t be stopped by your filing for bankruptcy.


  4. Loans from a pension. Despite the automatic stay, money can be withheld from your income to repay a loan from certain types of pensions, including most job-related pensions and IRAs.


  5. Multiple filings. If you had a bankruptcy case pending during the previous year, then the stay will automatically terminate after 30 days unless you, the trustee, the U.S. Trustee, or a creditor asks for the stay to continue and proves that the current case was filed in good faith. If a creditor had a motion to lift the stay pending during the previous case, the court will presume that you acted in bad faith, and you’ll have to overcome this presumption to get the protection of the stay in your current case.


  6. Co-debtors on certain debts.  Co–debtors are not afforded the same protections under the Automatic Stay that you are in Chapter 7. However, if you are filing for a Chapter 13 Bankruptcy, a creditor may not pursue a debt against a co-debtor or guarantor, if the debt is a “consumer debt.”

Q.     How long does the Automatic Stay last?

A.     The Automatic Stay in bankruptcy is neither absolute nor permanent. For most chapter 7 and 13 cases however, it stays in effect until the debtor gets a discharge from his or her debt, the property in question is no longer a part of the estate, or a judge lifts the stay at the request of a creditor, who must file a Motion for Relief from the Automatic Stay.


Q.     How Creditors Can Get Around the Automatic Stay


A.     Usually, a creditor can get around the automatic stay by asking the bankruptcy court to remove (“lift”) the stay, if it is not serving its intended purpose. For example, say you file for bankruptcy the day before your house is to be sold in foreclosure. You have no equity in the house, you can’t pay your mortgage arrears, and you have no way of keeping the property. The foreclosing creditor is apt to run to court soon after you file for bankruptcy, to ask for permission to proceed with the foreclosure — and that permission is likely to be granted.


Note:  This is not a legal advice.  You should seek the advice of your attorney about your specific case.


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