What is the Automatic Stay?
Apart from actually receiving a discharge of debts, an Automatic Stay is probably the most important feature of filing for bankruptcy.
When you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay immediately goes into effect and prohibits most creditors from continuing with collection activities. This can provide welcome relief to debtors as well as an opportunity to regroup during bankruptcy. Because of this, the automatic stay may provide a powerful reason to file for bankruptcy.
What the Automatic Stay Can Prevent
The automatic stay provides debtors with much-needed protections, such as putting a stop to:
- Utility disconnections. An automatic stop can prevent a disconnection on utilities if you’re behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service. The disconnection is prevented for at least 20 days.
- Foreclosure. An automatic stay temporarily stops foreclosure proceedings. But it’s important to know that most likely the creditor will be able to proceed with the foreclosure sooner or later.
- Collection of overpayments of public benefits. If you receive public benefits and were overpaid, the agency is allowed to collect the overpayment out of future checks – but an automatic stay prevents this collection. But if you become ineligible for the benefits, the automatic stay will not prevent the agency from denying or terminating benefits for that ineligibility reason.
- Multiple wage garnishments. You are able to collect a full salary, and you may also be able to discharge the debt in bankruptcy. Although no more than 25% of your wages can be taken to fulfill court judgments – up to 50% for child support and alimony, many people file bankruptcy if more than one wage garnishment is being threatened.
- Evictions, if the landlord has not yet received a judgment of possession against the tenant.
Can the Automatic Stay Stop an Eviction?
The automatic stay may offer some help if you are being evicted, but the new bankruptcy law makes it easier for landlords to proceed. A landlord can continue just as if you hadn’t filed for bankruptcy if they already have a judgment of possession against you when you file.
An automatic stop will also not help if the landlord alleges that you’ve been endangering the property. A landlord can also ask the court to lift the stay, allowing the eviction — and the court will probably agree to do so.
What the Automatic Stay Cannot Prevent
It’s important you educate yourself about what’s impacted by automatic stays before filing. While some things can be prevented, an automatic stay might not be able to prevent other important issues you are facing.
- Certain tax proceedings
- Support actions
- Criminal proceedings
- Loans from a pension
- Multiple filings
Can a Creditor Challenge an Automatic Stay?
A creditor can usually get around the automatic stay by asking a bankruptcy court to remove, or “lift” the stay, if it is not serving its intended purpose.
Here’s an example: you file for bankruptcy the day before your house is to be sold in foreclosure. You have no equity in the house and you can’t pay your mortgage. You have no way of keeping the property. The creditor seeking the foreclosing creditor can go to court after you file for bankruptcy and ask for permission to proceed with the foreclosure. That permission will most likely be granted.
Questions About Filing for Bankruptcy?
If you have questions or concerns about filing for bankruptcy and what you can protect, feel free to contact our legal team for more information.