What Is the Automatic Stay in Bankruptcy? Your Shield from Creditors
The automatic stay provides instant relief from most creditors and debt collectors as soon as you file for bankruptcy. It stops wage garnishments, foreclosures, repossessions, and collection lawsuits. The stay typically remains in place until you receive your bankruptcy discharge.
Get Free ConsultationAn automatic stay is a powerful protection that kicks in as soon as you file for bankruptcy. It stops most creditors from trying to collect debts. No more phone calls, letters, wage garnishments, or lawsuits against you.
The protection lasts until your Chapter 7 bankruptcy case ends or the court lifts the stay. You get breathing room to figure out your next steps without constant creditor pressure.
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The automatic stay activates the moment you file, stopping wage garnishments, foreclosures, and collection calls immediately. Find out if you qualify for Chapter 7 debt relief.
Check Eligibility NowWhat Is the Automatic Stay in Bankruptcy?
The automatic stay is a powerful protection that activates immediately when you file your bankruptcy petition. It stops most creditors from trying to collect debts from you.
Collection activities like wage garnishment, repossession, foreclosure proceedings, and harassing phone calls from debt collectors must stop immediately.
The term “automatic” means it happens right away when you file. You don’t need to do anything extra to get this protection. “Stay” means things have to stop. Think of it as a legal pause button on most collection efforts.
The automatic stay gives you breathing room without creditor pressure. It’s one reason bankruptcy is such an effective debt relief option.
How Does the Automatic Stay Work?
Once you file Chapter 7 or Chapter 13 bankruptcy, the court notifies your creditors about the bankruptcy filing. The automatic stay takes effect immediately. It acts as a legal shield that stops creditors from taking further collection action.
While this brings huge relief for many people, it doesn’t stop everything. Some debts aren’t affected by the stay, like child support, alimony payments, and certain tax debts.
In some cases, creditors can ask the bankruptcy court to lift the stay. But this usually only happens in special situations, like when you’re behind on a car loan and the lender wants to repossess the car.
What Can the Automatic Stay Stop?
When you file your Chapter 7 bankruptcy case, the automatic stay stops most collection lawsuits and other collection efforts.
The automatic stay can temporarily or permanently stop:
- Most debt lawsuits: If a debt collector sues you to collect a debt eligible for bankruptcy discharge, the automatic stay stops the lawsuit. If you complete your bankruptcy proceeding and the debt is discharged, the lawsuit can’t start again.
- Disconnection of utility services: When you file, the automatic stay stops a utility disconnection. You get at least a couple of weeks to catch up on the bill.
- Home foreclosures: Filing Chapter 7 can temporarily stop a foreclosure. If you can’t catch up on mortgage payments, the automatic stay gives you extra time before the foreclosure continues.
- Evictions: The automatic stay can temporarily delay eviction. You get a few extra weeks to find new housing if you’re behind on rent. But if the landlord already has an eviction order or there’s illegal activity, the court may allow the eviction to continue. When your bankruptcy case is complete, any past-due rent payments owed before filing should be wiped out.
- Wage garnishment: Filing a Chapter 7 case immediately stops wage garnishments for any dischargeable debts.
- Repossessions: The automatic stay temporarily stops car repossessions. Since the lender has a lien on the car, they can still repossess it after the Chapter 7 case ends or ask the court to repossess it sooner. The stay gives you extra time to arrange for another vehicle if you can’t keep up with payments.
What Can’t the Automatic Stay Stop?
The automatic stay doesn’t cover certain debts and actions, including:
- Criminal proceedings
- Actions in family court for alimony or child support
- Tax audits and some other actions by government agencies
- Loans against your retirement accounts or pension
- Debts incurred after your case was filed
- Two cases filed in one year. If you had a previous bankruptcy case in the same year, the automatic stay is only in effect for 30 days unless you ask the court to extend it.
- Three cases filed in a single year. No automatic stay without a motion and a hearing. The court may or may not grant the request for an automatic stay.
Other situations may exist where the automatic stay doesn’t apply, depending on your specific circumstances. However, in most Chapter 7 cases, the automatic stay stops most creditor actions.
When Does the Automatic Stay End?
The automatic stay typically remains in effect until your Chapter 7 case is closed. But there are two important exceptions to this rule:
- If you fail to file the Statement of Intention within 30 days of filing your Chapter 7 petition
- If a creditor asks to modify the stay
What Is the Statement of Intent Exception?
If you fail to file a Statement of Intention within 30 days of filing your Chapter 7 petition, the automatic stay is terminated.
The Statement of Intention is a bankruptcy form that tells secured creditors what you intend to do regarding their debt. Examples of secured debts are mortgages and car loans.
Most people do one of three things:
- Surrender the property to the creditor to get rid of the debt
- Reaffirm the loan to keep the property
- Redeem the property to keep the property
What Does It Mean if a Creditor Asks to Modify the Stay?
Some creditors may request a court order to modify the automatic stay. They want the court to make an exception for them and not have the stay apply to their debt. They must get court approval to do so.
Creditors most often file a motion to modify the automatic stay when filers fall behind on their mortgage, rent, or car payments. If the court agrees to modify the stay, it’s lifted for that debt. The creditor can restart collection actions.
If a creditor decides to ask the court to proceed with a foreclosure, eviction, or repossession, it must file a motion with the court. The motion must also be mailed to you so you have notice of the hearing.
If you file a response to the motion with the court, the judge will have a hearing. If you don’t file a response, the judge will usually give the creditor permission to take the property or continue a legal action.
Need help navigating creditor motions? You can speak with a bankruptcy attorney for free to understand your options.
What Happens if a Creditor Violates the Automatic Stay?
If a creditor ignores the automatic stay and continues trying to collect a debt, they’re violating federal bankruptcy law. Violating the automatic stay could include calling you, sending collection letters, filing lawsuits, or trying to repossess property.
If this happens, notify the court or your bankruptcy lawyer if you hired one. The court can sanction the creditor for violating the stay.
In some cases, the creditor may be required to pay punitive damages. They might reimburse you for any financial harm they caused or cover your attorney fees. Some courts may also award additional damages if the violation was particularly harmful or intentional.
The automatic stay is a legal protection, and creditors are expected to follow it. If they don’t, the law gives you tools to hold them accountable.
What Happens After My Chapter 7 Case Is Closed?
A Chapter 7 case is closed when the court issues a bankruptcy discharge. The bankruptcy discharge erases all the eligible debts that you listed on your paperwork.
A creditor can’t collect a discharged debt. For example, if you owe a credit card company $5,000, it can’t try to collect the debt if it was discharged in your bankruptcy case.
Most unsecured debts are dischargeable in a Chapter 7 bankruptcy case. These include credit cards, medical bills, personal loans, and most judgment loans.