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The automatic stay that starts when filing for personal bankruptcy

On Behalf of | Feb 27, 2024 | Uncategorized

In bankruptcy law, an “automatic stay” holds significant importance. It serves as a crucial protection mechanism for debtors, relieving them from the relentless pursuit of creditors.

This powerful injunction goes into effect immediately upon filing for bankruptcy. It serves as a legal barrier between the debtor and their creditors, halting virtually all collection actions, lawsuits, foreclosures, repossessions and other attempts to collect debts.

Scope of protection

The automatic stay is an instrumental component of both Chapter 7 and 13 bankruptcy filings and plays a vital role in the bankruptcy process. It encompasses a wide range of creditor actions, including:

  • Creditor harassment: Once the automatic stay is in place, creditors are prohibited from engaging in debt collection activity, including phone calls, letters or lawsuits
  • Foreclosure proceedings: The automatic stay temporarily halts foreclosure proceedings, providing homeowners with a reprieve from the potential loss of their property
  • Evictions: For tenants facing eviction due to unpaid rent or lease violations, the automatic stay can provide temporary relief, allowing them time to address their housing situation
  • Utility disconnections: Individuals at risk of having essential utilities such as water, electricity or gas disconnected due to unpaid bills are also protected by the automatic stay

While the automatic stay offers broad protection, there are certain exceptions where creditors may seek relief from the stay:

  • Criminal proceedings: The automatic stay may not apply to any criminal proceedings, including criminal evictions or actions to enforce child support obligations
  • Certain tax proceedings: The automatic stay may not apply to certain tax-related actions, such as the issuance of a tax deficiency notice or the commencement of a tax audit
  • Repeat filings: If a debtor has had one or more bankruptcy cases dismissed within a certain timeframe, the automatic stay may be limited or not granted at all in subsequent filings

The duration of the automatic stay varies depending on the type of bankruptcy filed and the debtor’s previous bankruptcy history. In Chapter 7 “liquidation” bankruptcy, the automatic stay typically lasts until the discharge of debts, which occurs within a few months of filing. Conversely, in Chapter 13 bankruptcy, the stay remains in effect throughout the duration of the repayment plan, which can last three to five years.

The automatic stay is an invaluable component of the bankruptcy process, offering immediate relief and protection to individuals facing overwhelming debt. By halting creditor actions, the automatic stay can give debtors some temporary breathing room to reorganize their finances.