Bankruptcy's Automatic Stay - What It Is & How To Understand It

The automatic stay is one of the most important provisions in the Bankruptcy Code. It comes into effect immediately upon filing. The automatic stay will stop professional collection calls, repossession attempts and foreclosure proceedings against a debtor while they are in the process of filing bankruptcy.

But what is it? And how does it work? This article will discuss an overview of the automatic stay and the importance of having an experienced bankruptcy lawyer in Georgia to guide you.

What exactly is an automatic stay?

An automatic stay is a restraining order that takes effect when a bankruptcy petition is filed. 

An automatic stay precludes certain creditors from pursuing debt collection against someone. For instance, if you are past due on your mortgage or vehicle loan and file for bankruptcy, lenders will not be able to foreclose on your house or seize your automobile.

An automatic stay is available in both Chapter 7 and Chapter 13 bankruptcy proceedings, the two most common forms of bankruptcy. 

A bankruptcy chapter 7 is a liquidation bankruptcy in which your property is auctioned to pay off your outstanding debt. Chapter 13 bankruptcy is reconstruction bankruptcy; your property is not auctioned, but you are bankrupt until your repayment plan is completed.

In any scenario, an automatic stay allows you to sort out your financial issues before creditors try to collect a debt.

Automatic Stay for Bankruptcy Victims

Unless an exemption exists, the automatic stay protects debtors from collection attempts throughout the bankruptcy proceedings (more below). It lasts until the court declines or dismisses the bankruptcy case.

In such a case, the stay is removed, and the debt returns to its pre-bankruptcy position. The automatic stay terminates with the bankruptcy case. If a debt is dismissed, the creditor cannot pursue it.

What Can the Automatic Stay Prevent?

When filing a Chapter 7 bankruptcy case, the automatic stay freezes most collection lawsuits and other debt collection operations. This provides you time to determine how to handle certain debts that may not be dismissed in your Chapter 7 case.

It also prevents creditors from pressuring you for payment, allowing you to begin to recover from a financial crisis.

The following are some of the acts that the automatic stay may temporarily or permanently halt:

Most civil actions are filed to recover debts.

If the civil case is brought to collect a debt qualified for a bankruptcy discharge (the debt is discharged), the litigation is terminated. If you finish your bankruptcy case and the debt is dismissed, the lawsuit cannot be reopened.

Disconnection of utility services.

Filing for bankruptcy to save utility service from being discontinued is seldom a good decision. On the other hand, this element may be essential for someone who has to declare bankruptcy to stop the possibility of having their utilities shut off. 

The automatic stay provides you with at least a couple of weeks to settle the utility bills  before the power goes off.

Put an end to foreclosures.

A Chapter 7 bankruptcy case halts foreclosure procedures (a lawsuit to take your home if you do not pay your mortgage). However, if you cannot catch up on your mortgage payments, the stay may be brief. 

If you can't make the mortgage payments, the stay might offer you a few more months to move out of the house. Once your bankruptcy is completed, the mortgage debt should be discharged, and the firm cannot attempt to recover any money from you that it did not get through the sale of your house.

Put an end to evictions.

The automatic stay may also be used to halt an eviction. However, much like a foreclosure, the stay is only temporary if you fall behind on your rent payments. If you face eviction, filing a Chapter 7 lawsuit may offer you a few additional weeks to locate another place to live. 

Be aware that certain courts may side with the landlord if the landlord already has an eviction order or if anything unlawful or detrimental to the property hs taken place. When your bankruptcy case is over, all past due rent payments you owe before you filed the bankruptcy case should be discharged.

Stop wage garnishments.

Filing a Chapter 7 bankruptcy case instantly ends wage garnishment for all debts dischargeable in the bankruptcy proceeding. 

As a result, if a credit card company obtains a wage garnishment order, your employer should cease withholding money from your wages since the debt should be dismissed after you complete your Chapter 7 case.

Put an end to repossessions.

Repossessions are also temporarily halted by the automatic stay. Because the creditor has a claim on the automobile title, bankruptcy only temporarily prevents repossession. Suppose you do not agree with the lender. In that case, the creditor may repossess the vehicle after the Chapter 7 case is completed or may petition the court to repossess the vehicle before the case is completed.

If you cannot make the car payments, the automatic stay, like eviction or foreclosure, might allow you a few weeks to find another vehicle.

Actions that are not prevented by the automatic stay

The automatic stay may not apply to all judicial proceedings. It will not put an end to criminal or traffic violations. The following legal proceedings may continue notwithstanding the automatic stay:

• divorce
• child support
• Spousal support,
• paternity claims, 
• child custody or visitation, 
• domestic violence, 
• non-dischargeable tax collections, and 
• evictions in certain circumstances.

Summary

An automatic stay is your protection from creditors. It stops all debt collection activity during the bankruptcy case except for secured creditors who can still repossess property such as homes and material assets like cars. However, in the case of Chapter 13 bankruptcy, there will be plenty of time to complete your debt payments and make a fresh start by rebuilding your credit. 

Dealing with debt collectors or making other important financial decisions before you speak with an attorney or file for Chapter 13 or Chapter 7 bankruptcy may put you at risk. Choose to get ahead of your debt. Please contact the Law Office of Jeffrey B. Kelly (Kelly Can Help)

if you want to learn more about using the automatic bankruptcy stay and other debt-relief options. For additional information or private consultation with reputable bankruptcy attorneys https://kellycanhelp.com/contact/, call our law office or schedule one through our website.