An automatic stay is an injunction that is triggered as soon as you file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy. It is a fundamental protection for debtors against most bill collectors. Once an automatic stay kicks in, creditors and collection agencies must immediately stop all collection activities. Creditors and collection agencies may no long contact you by phone or correspondence, cannot file suit to collect the debt or maintain a collection lawsuit, and cannot garnish your wages or file a lien.
For many debtors, the automatic stay provides significant relief and in some cases, it is one of the reasons to file for bankruptcy. In addition to offering emotional relief from anxiety, it allows a bankruptcy filer to regroup and plan for his or her financial future and the fresh start that will be available once debts are discharged in the bankruptcy.
Many debtors are at risk of being foreclosed upon, losing basic resources like utility services, or losing their jobs because of wage garnishments. An automatic stay prevents utility disconnection for 20 days and stops most wage garnishments (unless they are for priority debts like child support or alimony). The automatic stay also temporarily stops foreclosure proceedings and eviction. In general, if your landlord already has a judgment of possession in an eviction case, an automatic stay will not affect the eviction proceedings. Similarly, if the landlord claims that you have endangered the property or used controlled substances, he or she can get the stay lifted.
Although both have an automatic stay, Chapter 13 is usually a better choice than Chapter 7 bankruptcy when facing foreclosure, if you want to keep your home, because there are more tools available to keep your home under Chapter 13. A creditor can usually proceed with the foreclosure if you have filed Chapter 7 bankruptcy and do not have an official debt repayment plan or agreement in place.
What Actions and Proceedings Are Unaffected by the Automatic Stay?
If you are considering filing for bankruptcy, you should be aware that certain debts are non-dischargeable, and in some circumstances the automatic stay will not apply. For example, the automatic stay will not stop any lawsuit against you seeking to establish, modify, or collect alimony or child support. These debts are not dischargeable. In another example, the IRS can still demand a tax return or audit you, even though it cannot issue a tax lien or seize your property in most cases. An automatic stay will not wholly stop criminal proceedings, even if the criminal case contains debt issues. Instead, the criminal portion will be split from the debt repayment portion. Loans from most job-related pensions must still be repaid, and if you do not repay them, money may be withheld from your paycheck in spite of the automatic stay.
Motion to Lift the Automatic Stay
Creditors can file a motion to “lift” (remove) the automatic stay. For example, if you file for bankruptcy because you are about to be evicted for nonpayment of rent, and you do not pay the arrearages or the rent as it comes due, your landlord will likely go to court and ask the court to lift the stay so that he or she can evict you. Similarly, secured creditors that were about to repossess collateral, such as a car, because you failed to make multiple car loan payments may ask the court to lift the stay so they can seize the collateral and sell it.