- Has your phone been ringing off the hook with late-night calls from creditors?
- Have you gotten a scary foreclosure notice in the mail?
- Are you constantly looking out the window to make sure your car hasn’t been repossessed?
The mere act of filing bankruptcy can bring all of that to a screeching halt.
A court order is issued that prohibits your creditors from continuing any collection actions against you, or your property, with a few exceptions.
Creditors and bill collectors MUST cease collection activities the moment they find out you have filed bankruptcy.
Even if the creditor hasn’t received their official notice, they can’t claim “I didn’t get notice.”
If you file Chapter 13, the automatic stay even protects people who share your debts with you.
The automatic stay away order gives you breathing space.
Not only that, it protects your more aggressive creditors from making a play for your money at the expense of the “quieter” ones.
What does the automatic stay prohibit?
The automatic stay prohibits:
- Beginning or continuing a lawsuit;
- Collection calls;
- Repossessions;
- Foreclosure sales;
- Wage garnishments or levies.
How long does the automatic stay last?
The automatic stay remains in effect until one of the following happens:
- The bankruptcy judge lifts the stay at the request of one of your creditors;
- Your bankruptcy case is discharged;
- Your case is closed; or
- The item of property is no longer considered property of your bankruptcy estate.
This means that in Chapter 7 bankruptcy, the stay can prevent your home from being foreclosed on. However, the stay will expire, and the creditor will be free to continue the foreclosure once your bankruptcy is discharged. (This assumes that you have no non-exempt equity in the property for the bankruptcy estate. If you have equity, then your property is protected as part of the bankruptcy estate. Confused? Ask your bankruptcy lawyer which side of this line your particular situation falls on.)
In Chapter 13, the stay remains in effect for the life of your Chapter 13 repayment plan.
When does the stay become permanent?
Once your bankruptcy case is discharged, the automatic stay gets replaced by a permanent injunction that prohibits your creditors from doing all of the listed items above that the automatic stay put a stop to.
What falls outside the automatic stay?
The automatic stay doesn’t stop all legal proceedings. Exclusions include:
- Criminal proceedings;
- Actions involving a child support order or the modification of that order;
- Actions to collect support from property that wasn’t included in the bankruptcy estate;
- Tax audits, demand for tax returns or tax assessment (collection of taxes is still subject to the stay, however).
What happens if my creditors ignore the stay?
Any of your creditors who ignore the stay, in the context of your individual bankruptcy case, are liable for damages. Those damages include attorney fees to stop the violation, and any other damages your attorney can prove on your behalf.
In the case of terrible behavior on the part of your creditor, they might be liable for punitive damages.
The court can take several weeks to mail out notice of your bankruptcy filing to your creditors. If a collection action (say, a foreclosure, repossession, lawsuit, or garnishment) is looming, you or your bankruptcy attorney might want to call or fax those creditors to make sure they know about the stay.
Any action the creditor takes in violation of the stay has no legal effect. It’s their job then to unwind what they did and restore you to the situation you were in before they violated the stay.
How can I make sure the automatic stay is honored, and that those who ignore it are penalized?
An experienced bankruptcy attorney can guide you through the process and make sure your rights are protected. It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.
