What is the Automatic Stay in Bankruptcy? How Can it Help Me?
In this section of Total Bankruptcy, you will learn about:
- the automatic stay in bankruptcy;
- what the automatic stay stops;
- what the automatic stay will not stop; and
- how long the automatic stay will stay in effect.
Learning about the Automatic Stay in Bankruptcy
When you file for bankruptcy relief, your creditors must stop trying to collect from you. Creditors cannot continue to call you or send you collection letters. They cannot sue you, or repossess your car. They cannot garnish your wages, even if a garnishment order is already in effect.
The Bankruptcy Code protects you by force of the automatic stay provision. With very limited exceptions, this "stay" prohibits all collection activity after you file for bankruptcy relief. The automatic stay stops any lawsuit filed against you and almost any other action against you, your property and your paycheck.
The automatic stay stops all of the following emergencies:
Foreclosure: If your home is in foreclosure the automatic stay will stop the foreclosure action. Chapter 13 bankruptcy is your best bankruptcy option to save your home from foreclosure. Ordinarily, you can file a Chapter 13 bankruptcy petition to save your home anytime prior to the sale of your home. However, even a Chapter 7 bankruptcy filing will temporarily halt foreclosure action in most cases.
Utility shut-offs: If your lights and gas have been disconnected by the utility company, once you file bankruptcy the automatic stay will force the utility company to reconnect your service. If the utility company is threatening to shut-off your lights and heat, filing bankruptcy will prevent the utility company from disconnecting you. Sometimes the utility company will require a small deposit within a reasonable time after you file for bankruptcy relief. If you do not provide the deposit, they may be able to turn off your lights and heat after the bankruptcy filing.
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Repossession: The repo man cannot take your car while the automatic stay is in force. The automatic stay prevents your creditors from taking your car. However, this is a short-term solution. Ultimately, you must reaffirm your car loan or return the car in Chapter 7 bankruptcy. Chapter 13 bankruptcy may save your car, but you must make all of your trustee payments, or the car creditor can ask the judge to "lift the stay" so they can lawfully repossess your car.
Lawsuits/Garnishments: Filing bankruptcy stops lawsuits and wage garnishments immediately. The automatic stay protects your paycheck from your creditors. You will take home a full paycheck and if the debt is dischargeable, you will probably be able to eliminate that entire outstanding debt in bankruptcy.
SSI/Food Stamps/Public Benefit Overpayments: If you receive public assistance and the agency mistakenly overpaid you, the agency can collect the overpayment. The automatic stay stops the agency from collecting the overpayment. The debt will be eliminated in bankruptcy unless the government agency demonstrates it resulted from fraud.
Tax Levies: The automatic stay will stop the IRS from issuing a tax levy or seizing your property to satisfy delinquent tax debt. However, the IRS can still audit you, demand you file your tax returns, assess you a tax liability, and demand you pay the assessment.
The automatic stay will not stop any of the following:
Criminal Proceedings: The automatic stay will not stop a criminal action. If you are charged with driving under the influence, filing bankruptcy will not stop the state from prosecuting you or from imposing fines and court costs. If you've been charged with a crime, consult a criminal defense attorney in your area as soon as possible. However, if a criminal action can be separated into criminal and debt liabilities, the creditor may be stayed from collecting on the underlying debt.
Support Actions. The automatic stay will not stop a lawsuit against you seeking to establish paternity or to establish, modify, or collect child support or maintenance.
The automatic stay will remain in effect until:
- You complete the bankruptcy and receive a discharge;
- The bankruptcy judge lifts the stay at the request of the creditor;
- The property you want to protect is no longer part of the bankruptcy estate.
There are limited circumstances in which the automatic stay does not come into play automatically when your bankruptcy case is filed, or requires a motion from your bankruptcy attorney to keep it in effect. These circumstances generally apply to certain people who have recently filed one or more other bankruptcy cases. A bankruptcy attorney in your area can tell you whether or not these limited exceptions apply in your case.