How Does the Automatic Stay Work in Consumer Bankruptcy?

How Does the Automatic Stay Work in Bankruptcy?

What is an Automatic Stay?

If you are contemplating bankruptcy, then you probably have a lot of creditors after you. The constant pressure and hounding of creditors to collect can be troubling. However, the bankruptcy laws do provide some relief in the form of the “automatic stay.” Once a case has been filed, the automatic stay prevents your creditors form suing you to recover debts, and also prevents many other forms of collection attempts. The idea is to give the debtor, and the bankruptcy court, the opportunity to sift through the the assets of the bankruptcy estate. For example, once you file for bankruptcy, your mortgage lender cannot foreclose on your home, your auto lender cannot repossess your car, and your wages cannot be garnished. This protection lasts for the duration of your bankruptcy case unless your lender successfully motions the court to have it lifted.

Note, however, that there are some situations where the automatic stay does not apply, and, therefore, you will not be protected from actions by your creditors.

When does the Automatic Stay Begin?

In most cases, the automatic stay takes effect as soon as you file for bankruptcy, and it applies in both Chapter 7 and Chapter 13 bankruptcy cases. Because this stay is “automatic,” you do not have to take any action to request a stay other than filing for bankruptcy. Thus, as soon as you have filed, all of those annoying collection phone calls and letter must stop. Moreover, for the time being, your property is safe and cannot be taken by your creditors.

How Long Does the Automatic Stay Last?

The automatic stay lasts until the end of your bankruptcy case, unless your creditors are able to convince the court to “lift” the stay. The stay may be lifted, and therefore its protections removed, in a variety of situations. For example, if you have filed for Chapter 13 bankruptcy, but have not followed your repayment plan, then the court may lift the stay.

What Does the Automatic Stay Protect Me From?

The automatic stay prohibits all debt collection attempts while your bankruptcy case is pending, including:

Lawsuits: The automatic stay prevents your creditors from bringing a lawsuit to collect on your debts. The protection against lawsuits prevents new suits from being brought, as well as old suits from being continued. Thus, if you already have a lawsuit against you by a creditor, filing for bankruptcy may prevent that lawsuit from continuing during your bankruptcy.

Foreclosure: The automatic stay prevents your home form being foreclosed on during the bankruptcy proceedings. Hence, you will be able to remain in your home during the bankruptcy.

Collections Attempts: Most collections attempts by your creditors must cease with an automatic stay. Thus, you will stop being harassed by letters and phone calls.

Wage Garnishments: A wage garnishment is where your employer is required to withhold a portion of your pay, and send it to your creditors. However, the automatic stay prevents your wages from being garnished during bankruptcy.

Liens: A lien on your property means than a person has an interest in the value of that property until a debt has been repaid. Actions to enforce an existing lien, or to obtain a new lien against your property must be halted once bankruptcy has been filed.

When Does the Automatic Stay Not Apply?

There are some situations in which the automatic stay is unavailable to you. The following examples are common situations in which the automatic stay does not apply, or may be limited in some way:

Multiple Bankruptcy Filings: If you have filed for bankruptcy within the last year, and your case was dismissed, then the automatic stay only lasts for 30 days. If you have had more than one bankruptcy case dismissed in the past year, then the automatic stay does NOT apply.

If you previously filed for Chapter 7 bankruptcy, yet the court has determined that you are ineligible for Chapter 7, and then you file for Chapter 13 bankruptcy, then the automatic stay does NOT apply.

Child Support: The automatic stay does NOT prevent actions brought against you to collect unpaid child support.

Taxes: The automatic stay does NOT prevent the IRS from coming after you for unpaid taxes during bankruptcy.

When the automatic stay applies, and the level of protections that it offers can be complicated to figure out. If you are considering filing for bankruptcy, and you wish to know more about how to best protect your things from creditors, you should consult with an experienced attorney.