What is the Automatic Stay?

If you are considering filing for bankruptcy, you might have heard that bankruptcy can prevent harassment from creditors. You may be wondering how it is possible to make those aggravating phone calls stop. The answer lies in the function of the bankruptcy process commonly referred to at the automatic stay. The automatic stay applies broadly in bankruptcy and a Merrillville bankruptcy attorney can help you determine how it can help you deal with creditors. The automatic stay is the order issues by the bankruptcy court to all creditors to immediately stop all collection activity.

How the Automatic Stay Works

Under 11 U.S.C. § 362(a), the automatic stay is imposed when a bankruptcy petition is filed with the court. It is one of the most important bankruptcy protections afforded to a debtor. The purpose of the stay is to maintain the debtor’s current state of affairs, a least for a short time, so the bankruptcy court can control the resolution of actions and claims against the debtor and the debtor’s property. Once a bankruptcy claim is filed, the automatic stay generally stops all legal and collection actions against the debtor such as:

• Filing new lawsuits against the debtor;
• Continuing and existing lawsuits against the debtor;
• Entering or enforcing a judgment against the debtor that was obtained before the filing of the bankruptcy case;
• Any actions to collect a debt against the debtor, including some garnishments, and written or verbal requests for payment or offers of settlement;
• Repossession and foreclosure actions;
• Sheriff sales;
• Harassing phone calls.

For example, if you file a bankruptcy case, under the law, any action to foreclose on your home or repossess your vehicle must temporarily stop. Importantly, there is one key exception to the automatic stay that should be mentioned. The automatic stay does not stop some actions related to domestic support obligations, paternity proceedings, and custody actions. There are limited other exceptions to the stay so it is best to consult with an attorney about your specific circumstances.

How Long Does the Automatic Stay Last?

The automatic stay begins upon the filing of a bankruptcy petition and lasts as long as the case remains open, unless an individual creditor requests permission to end the automatic stay as to a certain asset that pertains to that creditor.

However, if the debtor had a previous Chapter 7 or 13 bankruptcy case within one year of the current case, and the prior bankruptcy case was dismissed, without getting a discharge, the stay will expire 30 days after the filing of a new bankruptcy case. In this situation, it is possible to extend the stay with the court’s approval.

To extend the stay requires filing a motion with the bankruptcy court and a hearing in which the debtor must attend and present evidence why this case differs from the previous case that was dismissed. If the debtor has had two previous cases within the last year that were dismissed, the automatic stay does not go into effect until a hearing and order by the court.

Creditors are also allowed to ask the Court for relief from the automatic stay so that they can continue their collection actions. To obtain relief from the automatic stay, a creditor would need to show cause why the stay should be lifted, or in the case of property, that the debtor does not have equity in the property and the property is not necessary to an effective reorganization.

In the absence of the situations discussed above, the automatic stay remains in place to protect property of the bankruptcy estate until that property is no longer property of the state.

Violations of the Automatic Stay

Usually, creditor actions that violate the automatic stay are void regardless of whether or not the creditor knew about the debtor’s bankruptcy filing. Creditors who violate the automatic stay may also incur sanctions for the violation. Additionally, in certain cases, debtors who are injured by a creditor’s willful violation of the stay can also recover damages.

Contact a Merrillville Bankruptcy Attorney Today

If you are experiencing financial hardship and cannot get out from under the persistent harassment of debt collectors, you may be able to take advantage of the protections afforded by the automatic stay. However, filing for bankruptcy is a decision that should be carefully considered with the help of a Merrillville bankruptcy attorney. Contact Whitten & Whitten today at 219-756-0555 for a free case evaluation or contact us online.