An automatic stay is an injunction that is issued automatically upon filing a bankruptcy petition which stops all lawsuits and all other collection activity against a debtor. The automatic stay does not discharge a debt, it merely suspends any proceedings to collect the debt until the stay is lifted or the bankruptcy case ends. An automatic stay restrains creditors from sending collection letters, calling the debtor regarding collection, suing on the debt, garnishing wages, repossessing property, foreclosing on home mortgages, or any other activity to collect a debt. The stay continues until the bankruptcy case concludes.
How Long Does an Automatic Stay Last?
If this is the first time the debtor has declared bankruptcy in the past year, the stay continues until the bankruptcy case concludes. If the debtor has declared bankruptcy one time during the preceding year, the automatic stay will only last thirty days. If the debtor has filed two or more bankruptcies during the preceding year, the stay will not go into effect at all without an explicit court order.
If the debtor has filed for bankruptcy at least once during the preceding year, the debtor can petition the court for an extension of the automatic stay.
Are All Legal Actions Subject to the Automatic Stay?
No, there are several exceptions to the automatic stay. The most common actions an automatic stay does not stop are:
- Criminal proceedings
- Establishment, modification, or collection of alimony or child support
- Establishment of paternity
- Audits by governmental units to determine tax liability
- Co-signers or co-debtors
What If a Creditor Tries to Collect a Debt after an Automatic Stay?
If a creditor tries to collect a debt after an automatic stay has been granted, a contempt of court action may be brought against the creditor. In a contempt of court action, the creditor will be made to stop the collection attempts, the creditor may be fined by the court, and the creditor may also have to pay damages caused by a violation of the automatic stay.
Can a Creditor Ask the Court for Relief from the Automatic Stay?
Some creditors can ask for relief from an automatic stay. Relief means that the creditor has the court’s permission to pursue debt collection, despite the automatic stay. The automatic stay will still be in place, but it won’t apply to the specific creditor.
However, only certain types of creditors can ask for relief from the automatic stay. Only secured creditors, or creditors with a claim to a specific property, are allowed to seek relief. One of the most common types of secured creditors are banks which claim a borrower’s home through unpaid mortgages.
Secured creditors must show two things in order to obtain relief from the stay. First, they must have cause to have relief from stay. The most common type of cause for relief is if the debtor has no equity in the property. Second, the creditor must also show that collateral is not necessary to an effective reorganization plan.
In summary, there are three requirements for creditor relief from an automatic stay:
- The creditor must be secured
- The creditor must have cause for relief
- The property collected should have no effect on a reorganization plan
Do I Need a Bankruptcy Lawyer?
Filing for bankruptcy is a very complicated process. Bankruptcy law varies depending on where the action is filed and which chapter of bankruptcy is being pursued. A bankruptcy lawyer knows the particulars of filing for bankruptcy, can recommend what chapter of bankruptcy is right for you, and can ensure that your paperwork is filed correctly. If creditors are still trying to collect after a bankruptcy action has been filed, a lawyer may be able to halt such collection efforts and may be able to get you some money damages.