• Jill Russell

Bankruptcy: What is an Automatic Stay?

The automatic stay stops people and companies that you owe from trying to get their money. Typically, the automatic stay activates as soon as you file your paperwork.

In a bankruptcy, an automatic stay is an injunction that prohibits creditors from taking certain actions to collect on debts.


The automatic stay prevents creditors from trying to collect money. In most cases, the automatic stay is immediately activated when you file your bankruptcy petition. This means the constant telephone calls, threatening letters, and fear of lawsuits should end when your bankruptcy is filed.


There are a few scenarios where the automatic stay does not apply. Below we break down when an automatic stay will apply and when it will not.


What can the Automatic Stay STOP?

The automatic stay stops most collection lawsuits and other actions to collect debts as soon as you file your bankruptcy case. This allows the filer the time to decide how to deal with some of their debts that may not be discharged by the bankruptcy. It also stops the harassment from creditors hounding you for payments.


Notable actions that the automatic stay can permanently or temporarily stop, include:


Most civil lawsuits to collect debts

If the civil case is filed to collect a debt eligible for a bankruptcy discharge, the creditor must cease prosecuting the case. If the debt is discharged at the completion of your bankruptcy case, the lawsuit cannot be resurrected.


Disconnection of utility services

Preventing your utilities from being shut off should not be your basis of filing bankruptcy. However, for someone who needs to file bankruptcy, this factor could be important. The automatic stay prevents utility companies from discontinuing services and gives you at least a few weeks to pay the utilities bills.


Stop foreclosures

Filing for bankruptcy protection will stay foreclosure proceedings (lawsuit filed to take your home if you do not keep up on your mortgage payments). However, the stay may be a temporary fix if you cannot catch up on the payments. Once your bankruptcy case is complete, the mortgage debt should be wiped out, and the company cannot try to collect any money from you beyond what money is made through selling the home.


Stop evictions

An eviction can also be temporarily stopped by the automatic stay. But similar to the foreclosure, the stay is only temporary if you are behind on your rent payments.


In other words, filing for bankruptcy will allow you a few weeks to find a new place to live if you are facing an eviction. It is important to note - some courts may side with the landlord if the landlord already has obtained an eviction order against you, or if something illegal or harmful to the property is occurring.


When the bankruptcy case is discharged, any past due rent payments owed before you filed bankruptcy should be wiped clean.


Stop wage garnishments

Wage garnishments for any debts that are dischargeable through the bankruptcy case stop immediately. In other words, your company should stop withholding money from your pay, because the debt should be discharged once you finish your bankruptcy case.


Stop repossessions

Repossessions are temporarily stopped by the automatic stay. However, the creditor can repossess the car after the Chapter 7 case is closed or ask the court to take the car before the case is closed if you do not work out a solution with the lender. The automatic stay will afford you a few weeks to arrange for alternative mode of transportation, but is not a permanent solution.


What can the Automatic Stay NOT Stop?

There are some debts and actions that the automatic stay does not extend to cover. Examples include:

  • Criminal proceedings

  • Actions in family court for alimony or child support

  • Tax audits and some other actions by government agencies

  • Loans against your retirement accounts or pension

  • Debts incurred AFTER your case was filed

  • Two cases filed in the same year - if you had a previous bankruptcy case in the same year, the automatic stay is only in effect for 30 days, unless the debtor requests to extend the stay through the bankruptcy court

Book Your Consultation

If you are ready to learn more about how bankruptcy could help you relieve your debt, call our office at 719-633-4541 to book your free initial consultation, or click the link to book online.


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