When filed with a bankruptcy court, a petition for bankruptcy immediately operates as an automatic stay. This means that most actions by a creditor, collection agency or government agency against the debtor are automatically stopped. 

Among the actions that a bankruptcy automatic stay stops are the following:

  • Beginning a collection lawsuit against the debtor by filing a complaint in a court of law;
  • Foreclosing on a mortgage loan;
  • Continuing lawsuits or other legal proceedings against the debtor that have already been started;
  • Actions to obtain debtor’s property, e.g. garnishment or levy;
  • Actions to create or enforce a lien against a debtor’s property;
  • Shut-offs of utilities for at least 20 days;
  • Repossessing a debtor’s motor vehicle;
  • Phone calling and other communication by debt collectors.

Most evictions are stayed unless the landlord obtained a judgement against the tenant before the bankruptcy petition was filed. Or, if the landlord can show that the tenant has endangered the property or used controlled substances on the property, the landlord might be able to continue an eviction

The automatic stay applies in both Chapter 7 bankruptcy, which is liquidation bankruptcy for individuals, and Chapter 13 bankruptcy, which is reorganization bankruptcy for individuals. It also applies to other types of bankruptcy petitions, including Chapter 11, the type most often used by businesses.

How Long Does an Automatic Stay Last?

An automatic stay lasts for as long as the bankruptcy case is in progress, with a few exceptions. Thus, the length of the stay depends on the length of the bankruptcy action. A Chapter 7 bankruptcy usually lasts for only a few months. A Chapter 13 bankruptcy can last as long as 3 to 5 years.

If a person has had another bankruptcy case dismissed within the past year, then the stay lasts only 30 days. And certain actions are stopped only for a limited period of time. For example, protection from a shut-off of utilities lasts for only 20 days.

If a debtor files for bankruptcy before being evicted by their landlord, then the stay protects the debtor from eviction for a period of time. But the landlord can file a motion in bankruptcy court seeking permission to evict the debtor, and the court will usually grant the landlord’s request unless the debtor shows a good reason as to why they should not be evicted. 

Are All Legal Actions Subject to the Automatic Stay?

The stay does not apply to all legal proceedings against the debtor. Legal proceedings that do not involve the debtor’s property and debt obligations might continue. Some of the actions that are not stopped by the automatic stay include:

Are There Any Exceptions to an Automatic Stay?

There are three different types of automatic stay exceptions:

  • Motions for relief from the automatic stay:  Creditors can ask the court for permission to restart collection efforts in some situations; for example, if there is collateral for a loan made by the creditor to the debtor, but the value of the collateral is less than the amount of the loan, the creditor might have the stay lifted for that collateral only;
  • Abusive filings: If a debtor filed a bankruptcy case very recently which was dismissed, the debtor can lose the right to an automatic stay; this is to prevent debtors from abusing the right to a stay for bankruptcy filings. 
  • Certain kinds of creditor actions: certain actions done by specific kinds of creditors, are not included in  the automatic stay.

A court may give a creditor relief from the stay if the creditor can show that the stay does not give the creditor “adequate protection” or if it jeopardizes the creditor’s interest in certain property. The court may give relief to the creditor in the form of periodic cash payments from the debtor or an additional or replacement lien on some property of the debtor.

In addition, as noted above, the automatic stay does not apply to every kind of legal action against a person who happens to file a petition in bankruptcy court. Some of the actions not covered by an automatic stay are listed above.

What If a Creditor Tries to Collect a Debt after an Automatic Stay?

If a creditor violates the stay and engages in prohibited collection efforts, it is the same as violating an order of the court. A creditor can face a finding of contempt of court; the creditor might have to pay damages. Or, the court might impose some other kind of sanction or punishment.

For example, if a creditor repossesses the debtor’s car, the court will declare the action invalid and return the car to the debtor. Or, if the creditor forecloses on the debtor’s house while the automatic stay is in effect, the foreclosure will be declared invalid. The creditor will also face significant penalties. 

Even a minor violation by a creditor can have serious consequences. For example, if a creditor sends collection letters to the debtor in violation of the stay, the court may order the creditor to pay damages, fines and legal fees. Most creditors know that they should not take actions that would violate the automatic stay.

Can an Automatic Stay Be Terminated or Modified?

Creditors can seek to terminate or modify an automatic stay. A creditor may want to continue a lawsuit, proceed against the debtor’s personal property or preserve the value of an asset  in the debtor’s possession in which the creditor has an interest. These are all reasons for which a creditor may want to terminate or modify an automatic stay. 

The creditor will file a motion for relief with the court, which will conduct a hearing within 30 days in order to determine whether to end or modify the stay. Creditors are not allowed to take action against you until such a decision is reached. If a creditor violates this rule, they could face serious consequences.

The most common reason for which a creditor seeks to end a stay is because the debtor is in possession of property that is collateral for a debt and is not providing adequate protection for the property.  

Or, the value of the collateral is less than the amount of the debt, i.e. the debtor has no equity in the property that the court needs to protect. In this case, the court may lift the stay and allow the creditor to pursue repossession of the property. If the debtor can show that they do have equity in the property, i.e. that the value of the property is greater than the debt, then this might defeat the motion to lift the stay. But the debtor may have to make up any late payments.

Do I Need a Bankruptcy Lawyer?

If you are being harassed by creditors and want to take action to solve your financial problems, you should consult an experienced bankruptcy attorney. An experienced bankruptcy lawyer can help you figure out how best to resolve your financial difficulties and what kind of bankruptcy action is best for you.

Bankruptcy law can be very complicated and technical. You are much more likely to get the best result from bankruptcy if you have an experienced bankruptcy lawyer on your side, giving you expert advice.