What is the Automatic Stay?
One of the biggest benefits of filing for bankruptcy is the automatic stay. The automatic stay can give you temporary relief from creditors and collections, give you the time you need to get your affairs in order, and to get your bankruptcy discharge.
What is the Automatic Stay?
When you file for bankruptcy, all of your property (other than property that is exempt) becomes the property of the bankruptcy trustee (at least in theory—in reality, for most people, nobody is taking any of your things).
Your money and assets are the bankruptcy estate’s property as well, so bankruptcy law doesn’t want creditors taking any of your money or property. That’s why the law provides for an automatic stay. The stay is an immediate restriction on any and all collection activities against you.
From debt collection calls to foreclosures to letters to the local mechanic’s calls to you to collect whatever money you owe—all of it must stop, immediately, and there are severe penalties for creditors who don’t abide by the stay. A creditor who ignores the stay can be ordered to pay your costs and your attorney’s fees.
In fact, during the foreclosure crisis of 2008, and even today, the bankruptcy stay is often used to delay or put off a foreclosure sale. In many cases, homeowners have used the extra time provided by the stay to modify their loans or work out some kind of solution with their banks.
People who are having wages garnished will also find relief, as the stay will prevent the creditor from continuing to take wages. Any lawsuits that have been filed against the homeowner, such as credit card or medical debt lawsuits, also must cease immediately.
In some cases, creditors can get relief from the stay and continue collection activities but they have to ask for the court’s permission. That often happens with secured creditors, like foreclosing banks, or repossession of vehicles. In some cases, they can continue their foreclosure—however, by the time they ask for permission to continue and receive it, the homeowner still gains significant extra time.
Additionally, debtors who file more than one bankruptcy may lose the protection of the stay.
If no permission is asked for and granted, the stay is in position until the end of your case (which, at least in a Chapter 7, should result in a discharge anyway).
The way that creditors even know that they must stop collection activities, and that there even is an automatic stay, is because they are notified by the bankruptcy court when you file your bankruptcy petition. The entities that are notified are those that you have listed on your bankruptcy paperwork. This is another reason why it is so important to complete your bankruptcy paperwork as fully and completely as possible.