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What Is An Automatic Stay In Bankruptcy

How Long Does The Automatic Stay Remain In Effect

What is an Automatic Stay in Bankruptcy?

You can think of an automatic stay in Chapter 7 or an automatic stay in Chapter 13 like an invisible barrier that protects you from your creditors during your bankruptcy case. Without permission, your creditors cannot penetrate this barrier to seize your assets, harass or threaten you, or take your money. In most cases, the automatic stay remains in force and effect during the entire bankruptcy case. The stay goes into effect the moment your bankruptcy petition is filed and remains in effect until the court issues an order closing case.

However, there are instances in which the provisions of the automatic stay may be modified. For example, a Chapter 13 automatic stay may be modified to allow a mortgage lender to foreclose on a home that the debtor has voluntarily surrendered or has failed to pay the loan payments for the home.

In most cases, the bankruptcy stay remains in effect throughout the case to protect you from your creditors. However, if a creditor files a motion to modify the stay, your bankruptcy attorney can discuss how to fight a motion for relief from automatic stay and what happens after automatic stay is lifted.

What Is An Automatic Stay In Bankruptcy

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In a Nutshell

The automatic stay stops the people and companies that you owe from trying to get their money. In most cases, the automatic stay goes into effect as soon as you file your paperwork.

Written byAttorney Jonathan Petts.

An automatic stay in bankruptcy is the injunction that prevents creditors from taking certain actions to collect debts. That is the technical explanation of an automatic stay. Letâs look at the simple explanation.

The automatic stay stops the people and companies that you owe from trying to get their money. In most cases, the automatic stay is in effect immediately when you file your Chapter 7 bankruptcy petition. That means you can expect the constant telephone calls, hateful letters, and fear of lawsuits to end as soon as you file your bankruptcy forms.

However, the automatic stay does not apply in a few situations. Letâs look at some things that the automatic stay can prevent and a few cases in which the automatic stay does not apply.

What An Automatic Stay Can Prevent

An automatic stay is a tool with obvious benefits to debtors who file Chapter 7 and Chapter 13. But its not a do-everything Swiss Army knife.

Here are some of the areas it can help, but remember, the help is temporary.

  • Foreclosure An automatic stay will keep foreclosure proceedings on hold for as long as your bankruptcy case is open.
  • Eviction Stays can be helpful for tenants but the relief is not as open-ended as it is with foreclosure. The relief from eviction can last for a brief period but the landlord can request the stay be lifted while the bankruptcy filing is still active.
  • Utility disconnections An automatic stay wont erase what you owe in unpaid utility bills, but it can keep your utilities from getting shut off for at least 20 days.
  • Collection of overpaid public benefits If you were overpaid for any benefits Medicare, unemployment an automatic stay prevents creditors from garnishing the overpayment. Note: It does not stop the agency providing the benefits from stopping payment to you.
  • Multiple wage garnishment A stay can protect you from having your wages garnished. If the debt that prompted your wage garnishment is wiped out in bankruptcy, filing for bankruptcy could stop the garnishment permanently.

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How Creditors Can Resume Collections: Filing A Motion To Lift The Automatic Stay

Usually, a creditor can get around the automatic stay by asking the bankruptcy court to remove the stay. To avoid fines and penalties, the creditor must file a motion asking for permission to continue with collection efforts.

Motions to lift the automatic stay commonly involve the following:

  • a foreclosure action
  • a landlord/tenant dispute, or
  • a lawsuit in another court.

The bankruptcy court won’t rubber stamp the creditor’s request, however. The creditor must show that keeping the automatic stay in place will cause the creditor to lose money and provide no financial benefit or harm to other creditors.

For instance, suppose that you file for bankruptcy the day before your house is to be sold in foreclosure and the facts are as follows:

  • You don’t have any equity in the house.
  • You can’t catch up and pay your mortgage arrears.

The foreclosing creditor is apt to go to court soon after you file for bankruptcy and ask for permission to proceed with the foreclosure. The basis for the motion will be that when taking out the mortgage, you put up a home as collateral, thereby giving the lender a lien that allows it to recover the home through foreclosure if you, the borrower, defaults on the agreement, such as by failing to make timely payments. With this type of debtknown as a secured debtthe house guarantees payment and in most cases, gives the lender the right to the house above all other creditors.

In the example above, the court will likely grant the request because:

Actions Not Stopped By Automatic Stay

What Is Automatic Stay In Bankruptcy?

Not all legal actions are subject to the automatic stay. It will not stop criminal actions or traffic violation proceedings. The following civil actions can proceed regardless of the automatic stay:

  • child support
  • Trade
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    How The Automatic Stay Helps You

    There are a few specific things the automatic stay will not do, but overall you are going to experience a great deal of breathing room once it goes into action affording you time to recognize your financial life.

    It is important to remember that every case is different, so speak to a Miami Bankruptcy Attorney about your situation and find out what the automatic stay will and will not do for you.

    What Does It Mean If The Stay Is Lifted

    Usually, the stay is lifted as a particular creditor goes to the court. If the bankruptcy court grants this creditor relief from the automatic stay, it can continue to go after the debtor. However, the whole stay isnt lifted.

    If you have a bunch of credit card debt and then you also have a car loan, and the car loan goes in to lift the stay, only the car lender is the one who can continue collection actions, Lee said. The rest of the creditors are still stayed.

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    How Long Does Stay Last

    The automatic stay remains in effect until

    • The bankruptcy judge lifts the stay at the request of a creditor
    • The debtor gets a discharge
    • The case is closed or
    • The item of property is no longer property of the estate.

    Thus in Chapter 7, the stay may prevent immediate foreclosure on a debt secured by real estate. However, the stay will expire, and the creditor be freed to proceed, when the debtor gets a discharge.

    In Chapter 13, the stay remains in effect for the life of the Chapter 13 plan.

    Supreme Court Holds Passive Retention Of Collateral Does Not Violate Automatic Stay

    What is an automatic stay? Bankruptcy 101

    On January 15, 2021, the Supreme Court unanimously ruled in City of Chicago v. Fulton that a secured party in possession of a debtors collateral does not violate the automatic stay by passively retaining possession of the collateral after a debtor commences a bankruptcy case.

    When a debtor files a bankruptcy case, the Bankruptcy Code protects the debtor by imposing an automatic stay on efforts to collect prepetition debts outside the bankruptcy forum. The automatic stays prohibitions include any act . . . to exercise control over property of the bankruptcy estate. The issue in City of Chicago was whether a creditor violates the automatic stay by retaining possession of a debtors property after a bankruptcy petition is filed. Prior to the Supreme Courts decision, the circuit courts of appeal had split on the issue.

    In City of Chicago, the city of Chicago had impounded defendant Fultons car based on outstanding motor vehicle fines. When Fulton filed a Chapter 13 bankruptcy petition, Fulton requested that the city return his vehicle. The city refused and the bankruptcy court held that the citys refusal violated the automatic stay, which ruling was affirmed by the Seventh Circuit, which concluded that by retaining possession of the debtors vehicles after they declared bankruptcy, the city had acted to exercise control over respondents property in violation of the automatic stay.

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    Need Help Filing For Chapter 7

    Upsolve is a non-profit company that helps low-income individuals and couples who cannot afford a bankruptcy lawyer to file Chapter 7 on their own. Click here to use Upsolveâs free bankruptcy screening tool to help you qualify.

    We do not provide legal advice, but we do provide free bankruptcy resources, bankruptcy forms, and information that can help you file Chapter 7 without an attorney.

    Does The Automatic Stay Stop Wage Garnishment

    Yes. Once you file for bankruptcy, the automatic stay stops all wage garnishments until the stay is lifted by the bankruptcy court. A wage garnishment is a tool whereby a certain amount of your monthly income is taken from your paycheck to pay your creditor.

    If you have multiple garnishments against your wages, then you may want to consider filing for bankruptcy as it would allow you to take home your entire paycheck.

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    The Automatic Stay As A Steppingstone On Your Way To Lasting Debt Relief

    The automatic stay can be seen as the first step toward debt relief. If gives the filer some immediate relief before their discharge is entered. The order of discharge is the point near the end of a bankruptcy case when youâre officially absolved of your debts. In Chapter 7 bankruptcy, youâll be able to walk away from all of your unsecured debts, like medical bills and any balance on your credit cards. This may or may not be your total debt, because certain debts, like child support, will survive a bankruptcy.

    Part of the intention with a bankruptcy proceeding is to take any available assets from the filer and distribute those funds equally among all unsecured creditors. Youâre still able to protect most of your personal possessions by using exemptions. If, however, you have more than a small amount of non-exempt equity in a personal property item the Chapter 7 trustee can sell the property for the benefit of all unsecured creditors to share. If any single creditor were allowed to be aggressive in continuing to collect their own debt, that would leave less available to go to all the creditors overall.

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    What is Automatic Stay in Bankruptcy?

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    Automatic Stay Protection During Bankruptcy

    The automatic stay provides debtors with protection against all collection efforts during the bankruptcy case, unless an exception applies . It lasts until the court denies the bankruptcy discharge or the court dismisses the case. In that situation, the stay will be lifted, and the debt will return to the status before the bankruptcy. The automatic stay will also end when the bankruptcy case ends. However, if a debt has been discharged, the creditor cannot try to collect it.

    When Does An Automatic Stay End

    The automatic stay ends in three situations. The court can enter an order lifting the automatic stay. The stay also ends if the case is dismissed or discharged.

    If a case is unsuccessful, then it ends in a dismissal. In this situation, the creditor can resume collection proceedings.

    If the case is successful, a discharge is entered. A discharge is the elimination of the debt. A creditor cannot pursue collections of a discharged debt.

    Some debts are not dischargeable, such as taxes, student loans and child support. If you owe these debts, collections may resume after discharge.

    If you need relief from your creditors, you can hire an expert bankruptcy lawyer in Jackson, MS from The Rollins Firm and determine the best course of action.

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    How A Stay Of Proceeding Works

    A stay of proceedings is an automatic feature of filing a consumer proposal or bankruptcy. You dont have to ask for one you get one as soon as you file.

    As soon as you inform your trustee of a legal action your trustee will put the Court, and the parties involved in the lawsuit, on notice that you have filed bankruptcy and the stay is in place. This is one of the roles of your bankruptcy trustee to deal with creditors and creditor actions for you.

    This protection from your creditors remains in place during your bankruptcy unless the creditor applies to the Court to have it lifted.

    Once you are are discharged from bankruptcy the stay stops but at that time it doesnt matter because the debt would have been included in your bankruptcy and has been eliminated by your discharge so theres no longer any basis for a lawsuit.

    How To Get An Automatic Stay

    What is the Automatic Stay in Your Personal Bankruptcy Case

    The automatic stay is just that automatic. This means that its granted as soon as you file for bankruptcy without you needing to do anything else. The bankruptcy court will notify your creditors that you have filed and to request that they cease communication with you, along with collecting any information needed from them such as confirmation of the amount of debt, the date the debt was assumed, etc.

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    After You File For Bankruptcy The Automatic Stay Offers Potent Legal Protection Against Bill Collectors

    By Cara O’Neill, Attorney

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    Streamline your researchtake our bankruptcy quiz to identify potential issues with your bankruptcy case.

    When you file for bankruptcy, a court order called the automatic stay immediately stops most civil lawsuits filed against you and most collection actions being taken against your property by a creditor, collection agency, or government entity. The automatic stay may provide a compelling reason to file for bankruptcy. Bankruptcy can temporarilyand sometimes permanentlyhelp if you’re at risk of being evicted, being foreclosed on, or losing such essential resources as utility services or a portion of your paycheck through wage garnishment.

    Not sure which bankruptcy chapter is best for you? Start by reading What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

    How An Automatic Stay Can Benefit You

    Taking back control over your financial situation can be difficult when you have creditors constantly calling, emailing you, or sending you letters about the money you owe. While some creditors can petition the court to lift an automatic stay, this can buy you a little bit of time to get things like your vehicle or mortgage payments caught up before they are repossessed or foreclosed on.

    If you owe rent to a landlord, they may ask for the stay to be lifted so they can legally evict you from the property for nonpayment, but if you are able to get the rent paid in this time frame, an eviction can no longer be pursued for this reason.

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    What A Stay Of Proceeding Will Stop

    It doesnt matter what stage the action against you is in. Filing bankruptcy provides protection from of all actions which means:

    • If someone is threatening legal action for money you owe them, a stay of proceedings eliminates the threat.
    • If they filed documents with a Court, the stay will stop the court action from proceeding.
    • If someone has already started a legal action again a stay stops the action dead in its tracks.
    • If someone has already sued you and been given a Judgment against you by the Court the stay of proceedings stops the enforcement of the Court Order.

    One of the most common actions stopped as a result of the stay from filing bankruptcy is a wage garnishment.

    As you can see, a stay of proceedings is a very powerful benefit when you file a consumer proposal or bankruptcy.

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