Automatic Stay Explained: How Does It Help My Bankruptcy Case?

The Law Offices of James L. Arrasmith

When navigating the complex terrain of bankruptcy, one of the most critical protective measures a debtor encounters is the “automatic stay.” As its name suggests, it automatically halts most collection actions by creditors, providing a temporary shield for those who’ve filed for bankruptcy. This provision offers an essential reprieve, allowing individuals and businesses the breathing room to reorganize their finances and work towards a fresh financial start. In this guide, we’ll delve deeper into the nuances of the automatic stay, understanding its significance and how it fundamentally impacts a bankruptcy case.

Basics of the Automatic Stay

  • Introduction to bankruptcy’s most powerful protection tool.
  • Designed to offer temporary relief to debtors.

What it is and Why it Matters

  • A legal provision that stops most collection efforts.
  • Prevents creditors from initiating or continuing lawsuits.
  • Halts wage garnishments, foreclosures, and utility disconnections.

Scope and Limitations

  • Not all debts are covered (e.g., child support).
  • Some creditors might be allowed to bypass the stay.

When the Automatic Stay Does and Doesn’t Apply

  • Applies immediately upon filing for bankruptcy.
  • Exceptions: Multiple bankruptcy filings, secured debts like mortgages, and certain tax proceedings.

Impact on Different Types of Debts

  • How different debts are treated under the automatic stay?

Secured vs. Unsecured Debts

  • Secured Debts: Creditors can ask the court to lift the stay.
  • Unsecured Debts: Generally cannot pursue collections while the stay is in effect.

Filing Bankruptcy Court

  • Understanding the Process: Familiarize oneself with the necessary paperwork, documentation, and timelines associated with initiating a bankruptcy filing.
  • Choosing the Right Chapter: Determining whether to file under Chapter 7, Chapter 11, or Chapter 13, based on individual or business financial situations and objectives.

How Long Does the Stay Last?

  • Typically remains until the bankruptcy case is closed, dismissed, or a discharge is granted.

Duration and Potential Extensions

  • In Chapter 7: Lasts until the case ends or the property is no longer in the estate.
  • In Chapter 13: Can last the duration of a 3-5 year payment plan.

Exceptions to the Automatic Stay

  • Not a universal protection – there are limitations.

Specific Scenarios Where the Stay Doesn’t Protect the Debtor

  • Collection of alimony and child support.
  • IRS audits, tax assessments, and demands for tax returns.

Relief from the Stay

  • Circumstances under which the stay can be lifted.

Processes and Circumstances for Creditors

Can Creditors Avoid the Automatic Stay?

  • In specific situations, yes.
  • Repeat bankruptcy filers might not be granted the stay.
  • Some secured creditors can resume property repossession.

My Creditor Violated the Automatic Stay. Now What?

  • Understanding rights and potential actions.

Steps to Take and Potential Remedies

  • Document the violation.
  • Consult with an attorney.
  • File a complaint in bankruptcy court.

Repercussions for Violations

  • Creditors may face sanctions.
  • Fines and potential damages.
  • Compensatory and even punitive damages for willful violations.

Criminal Proceedings and the Automatic Stay

  • Broadly, the stay halts criminal proceedings if the debt is dischargeable.

How the Stay Impacts Ongoing or Potential Criminal Cases

  • Doesn’t affect most criminal proceedings.
  • Might affect debt-related portions of a criminal case.

Harassment from Creditors During the Stay

  • An automatic stay also offers protection against harassment.
  • Report any harassment post-filing.
  • The court may sanction creditors who knowingly violate the stay.

FAQs

Q:

When does the automatic stay begin?

A: It begins immediately upon filing for bankruptcy.

Q:

Can a creditor ever contact me after I’ve filed for bankruptcy?

A: Generally, no. If they do, it may be a violation of the automatic stay.

Q:

Are all my debts covered by the automatic stay?

A: No, some debts like child support or specific tax obligations might not be covered.

Q:

What if I file for bankruptcy multiple times?

A: If you file multiple times in a year, the automatic stay might be limited or non-existent.

Q:

Can the automatic stay stop an eviction?

A: It can delay it, but if the landlord already has a judgment of possession, the eviction might proceed.

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