How Bankruptcy’s Automatic Stay Can Help You
The automatic stay in bankruptcy means that creditors (those to whom you owe money) must stop their collection efforts. They are forbidden to send you collection letters, call you, sue you, repossess your car, or garnish your wages. This applies even to those orders initiated before your bankruptcy filing.
The automatic stay provision of U.S. Bankruptcy Code protects you from creditors by force. Once you file for bankruptcy relief, the automatic stay protects you from all but a very few collection efforts. In addition, this "stay" halts lawsuits and almost any other legal action brought against you, your paycheck, and your property.
The following emergencies are protected by the automatic stay:
Utility shut-offs: If the utility company has shut off your lights and gas, bankruptcy's automatic stay will force them to reconnect you. The automatic stay can even stop threats of disconnecting you-and force the utility company to leave your power on. In some cases, the utility company will ask for a minimal deposit within a certain time period after your bankruptcy filing. If you don't pay that amount, they might turn off your power even after you file for bankruptcy.
Foreclosure: If you're facing foreclosure, the foreclosure proceedings will be halted by the automatic stay. Filing for Chapter 13 bankruptcy may be the best way to save your house from foreclosure. In most cases, filing for Chapter 13 bankruptcy at any time prior to the sale of your house will prevent foreclosure. But even filing for Chapter 7 bankruptcy can temporarily stop foreclosure action.
Lawsuits/Garnishments: Lawsuits and wage garnishments are instantly halted when you file for bankruptcy. Because of the automatic stay, your paycheck is safe from collectors and creditors. You'll go home with a full paycheck and, if your debt is dischargeable, your bankruptcy filing may purge all outstanding debt.
Repossession: With the power of the automatic stay in place, the repo man cannot take your car. Creditors, too, are blocked from taking your vehicle by the automatic stay. Be aware, though, that this is only a short-term solution. In the long run, you'll have to reaffirm your loan or file Chapter 7 bankruptcy and return the car. Chapter 13 bankruptcy can only save your car if you make all the necessary payments. Otherwise, creditors can demand that the judge "lift the stay" in order to legally repossess your car.
SSI/Food Stamps/Public Benefit Overpayments: If a public assistance agency mistakenly overpays you, that agency can usually collect the excess amount. With the automatic stay in place, though, the agency cannot collect the overpayment. Unless the agency can prove that the overpayment was a result of fraud, your bankruptcy filing will eliminate that debt.
Tax Levies: While the automatic stay is in place, the IRS cannot seize your property or issue a tax levy as payment for a tax debt. The IRS can still audit you, though, as well as require you to file tax returns, assess you a tax liability and force you to pay the assessment.
Neither of the following will be stopped by the automatic stay:
Criminal Proceedings: Criminal action will not be affected by the automatic stay. If you're facing charges for driving under the influence, a bankruptcy petition will not prevent prosecution, fines or court costs. If you have been charged with a crime, you should contact a criminal defense attorney near you right away. If a criminal action involves separate debt and criminal liabilities, the automatic stay may prohibit the creditor from collecting the underlying debt.
Support Actions: The automatic stay will have no impact on lawsuits against you involving the establishment of paternity, or the establishment, modification or collection of child support or maintenance.
The automatic stay remains effective until:
- You finish your bankruptcy proceedings and are discharged;
- The bankruptcy judge responds to a creditor's request to have the stay lifted;
- The protected property becomes separate from the bankruptcy estate.
In some limited circumstances, the automatic stay is not automatically activated when you file bankruptcy or requires your bankruptcy lawyer to file a motion to keep it in effect. Usually, these circumstances apply to some people who have recently filed one or more bankruptcy petitions. A bankruptcy lawyer near you can help you determine whether or not these limited exceptions apply to or affect your case.