An automatic stay is a type of statutory protection for debtors available in both Chapter 7 and Chapter 13 bankruptcy claims. Automatically issued whenever the debtor files for bankruptcy, an automatic stay prohibits creditors from attempting to collect debts, enforce liens, or foreclose on the debtor’s home.

While the automatic stay does not relieve the person of their debt, it does suspend any collection efforts by creditors so long as the bankruptcy case is still being resolved. Thus, an automatic stay affects any foreclosure that the debtor may be facing at the time they file for bankruptcy.

How Does an Automatic Stay Affect Foreclosure?

The action of an automatic stay placing a halt on any debt collection you may be facing means that if you are facing a foreclosure on your home, your lender will not be able to demand payments from you during the time that the bankruptcy claim is being heard. This can have several advantages for the borrower, such as:

  • Providing additional time to arrange for alternative or back-up housing
  • Providing time to raise more funds to reinstate the mortgage
  • If you have filed under Chapter 13, the automatic stay can provide a window of time for you to re-organize your finances in anticipation of the upcoming payment plan

Thus, an automatic stay is best seen as a temporary means of delaying foreclosure. You should keep in mind that while an automatic stay might be a good way to find immediate relief, filing for bankruptcy can affect your credit scores in the long run. Thus, you should weigh the pros and cons of filing for bankruptcy before you make the decision to do so.

Are There Any Exceptions to an Automatic Stay?

There are a few circumstances when an automatic stay is not immediately available to a person filing for bankruptcy. This mostly applies to persons who have filed multiple bankruptcy claims in a short period of time. Such persons are known as “repeat” or “serial” bankruptcy debtors. For such persons, the following exceptions may apply:

  • If you have filed for bankruptcy within the past year, the automatic stay might only apply for 30 days after your current filing. This may vary by case, and it may be possible to ask the judge for an extension in cases of extreme hardship.
  • If you have had two or more bankruptcy cases dismissed within the past year, some jurisdictions do not allow an automatic stay at all.

Can an Automatic Stay Be Terminated or Modified?

Lenders can file a motion to terminate or lift an automatic stay in a bankruptcy claim. If such a motion is granted by the court, the lender will be able to proceed with the foreclosure unless otherwise ordered by the court. Of course, the borrower can oppose the motion to terminate the automatic stay. In this case, the court will need to conduct additional hearings to determine whether the stay should be terminated or not.

In some cases, the lender and the borrower can actually negotiate an agreement or “stipulation”, in which they modify the terms of the automatic stay. For example, the parties may agree to shorten the length of the automatic stay, on condition that the lender lower the monthly payments. In this way, the parties can avoid the extra time and expenses that would be spent in court waiting for a ruling on the stay. Any stipulations made by the parties do need to be approved by the court.  

Do I Need a Lawyer to Help Me with Foreclosure and Automatic Stays?

While foreclosure can be intimidating, an automatic stay can be beneficial for both the lender and the borrower. You may wish to hire an experienced financial lawyer for help in filing a bankruptcy claim, especially if you need an automatic stay enforced. Your attorney can assist you with the necessary paperwork, and can represent you during the hearings.  Your lawyer can also counsel you if you need to engage in negotiations over the terms of an automatic stay.