The Automatic Stay

The automatic stay, a key feature of the United States Bankruptcy Code, affords debtors with an array of protection and relief without turning a completely blind eye toward the interests and entitlements of their creditors. Debtors enjoy shelter from the meddlesome and often harassing efforts of creditors to collect debt, and should creditors violate these conditions, debtors will be compensated in court. At the same time, the rights of creditors are also preserved to collect highly prioritized debt such as family and domestic obligations and well as certain tax debt. Surely, the automatic stay crafts a practical protection of debtors’ interest, restraining creditors’ actions against a debtor, without absolutely abolishing them.

As discussed in Section 362 of the United States Bankruptcy Code, an automatic stay is an injunction immediately imposed the moment a bankruptcy petition is filed against a debtor’s creditors (with certain exceptions) who wish to commence or carry on with existing efforts to collet debt owed to them by the debtor. Without the need for any court order, it goes into effect well before the meeting of creditors is held or a discharge is granted. At once, it halts the overwhelming majority of civil lawsuits filed against a debtor or a debtor’s property. This applies no matter if a collection agency, creditor, or even a government entity filed such a lawsuit. However, the automatic stay only pertains to the debtor; it does not protect any co-debtors, guarantors, or affiliates who have not chosen to file bankruptcy in their own right. As long as the bankruptcy proceedings persist, so too will the automatic stay. Moreover, once a bankruptcy case reaches its completion, the automatic stay gives way to the discharge injunction – allowing the debtor a fresh financial start. Should a bankruptcy case be dismissed on the other hand, the automatic stay instantly ceases. Clearly, while not limitless, the automatic stay is a fundamental feature of the Bankruptcy Code, and often is a major incentive for a debtor to file a bankruptcy petition.

Garnishments must stop

Debtors enjoy numerous protections and privileges offered to them by the automatic stay. Not only does an automatic stay require creditors to put a stop to any efforts to collect debt once the bankruptcy is filed, it also provides debtors with a remedy should a creditor violate said requirement. Indeed, when creditors make illegal attempts to collect debts after an automatic stay has gone into effect, debtors may sue those creditors in court, often winning lucrative sums. Beyond barring creditors’ pending lawsuits and solicitations to collect debt from bankrupt debtors, the automatic stay provides debtors with a few more limited protections as well. For example, if a debtor is in arrears on a utility bill and the utility company threatens to discontinue that utility, the automatic stay will prevent the discontinuance for at least three weeks, buying the debtor precious time. Another instance of an automatic stay buying debtors much-needed time arises when a landlord threatens eviction shortly after the bankruptcy petition is filed. Even though the court is likely to lift the stay and allow the eviction should the landlord request, the automatic stay is still likely to delay the eviction by at least days if not weeks, thus providing the debtor with a little more time to make new living arrangements. Also, there is added protection for those debtors who receive public benefits. Oftentimes, a recipient of public benefits is overpaid by the agency in error. Normally, when this occurs, the agency has the ability to collect its overpayment by lessening the amount of future payments. Luckily for debtors who have filed bankruptcy, the automatic stay prevents such a collection. Similarly, an automatic stay will put an end to most wage garnishments, thereby allowing a debtor to once again take home a full wage or salary. Without a doubt, the automatic stay provides debtors with financial breathing room and peace of mind.

Even though the automatic stay stands as an extensive benefit to debtors who have filed bankruptcy, it neither offers protection from every sort of debt, nor does it completely ignore the interest of creditors. For instance, although a landlord would have to request an automatic stay to be lifted in order to initiate an eviction after the debtor has filed bankruptcy, this would not be the case if the judgment of possession were obtained prior to the filing. In that circumstance, the eviction would continue as scheduled regardless of the automatic stay, as if the debtor had never filed bankruptcy. In fact, a landlord’s eviction of a debtor in which case the lease was completely terminated before the bankruptcy was filed is one of the most common exceptions to the automatic stay. In addition, although the automatic stay will prevent the collection of overpayments from public benefit agencies, it will not impede the agency from finding that the debtor is no longer eligible to receive future additional benefits for legitimate reasons. Likewise, while the automatic stay will freeze most garnishments, it will not free a debtor of his or her obligation on particular garnished debts including alimony and child support. What’s more, the automatic stay will neither put an end to a pending criminal proceeding, nor will it free a debtor of debt owed as a result of a past criminal conviction. When it comes to taxes, the automatic stay will not stand in the way of the Internal Revenue Service’s ability to seize a tax refund, and it will not relieve debt owed as a result of an early withdrawal from a job-related pension or individual retirement account. Obviously, there are certain limits to the benefits that debtors enjoy from the automatic stay.

Lastly, the automatic stay serves as an injunction that presents debtors with a wide range of protections while maintaining a fair eye toward their creditors. Debtors are relieved from most garnishments, unburdened by most pending civil lawsuits, and afforded the power to redress an infringement of the automatic stay on the part of a creditor. Nonetheless, creditors’ rights remain largely preserved when it comes to their ability to collect debt stemming from child support, alimony, or a sum awarded to them as a result of a criminal proceeding. Indeed, the automatic stay, a long-standing staple of the United States Bankruptcy Code, remains a just and equitable provision for all concerned parties.

Notice, Notice, Notice!!!

Providing notice of the pending bankruptcy is the key feature of the automatic stay. Typically, notice of the bankruptcy case is issued by the Bankruptcy Noticing Center which sends notice of the bankruptcy via electronic notices or via U.S. Mail.

However, a debtor may verbally notify a creditor or debt collector of the pending bankruptcy case. Regardless, the key feature to trigger the protection of the automatic stay is to provide notice to the debt collector or creditor.

In short, if a creditor or debt collector contacts you after the filing of your bankruptcy, contact our office immediately. Even if the debt collector simply leaves a voicemail message, contact our office immediately to enforce the automatic stay. You may be able to collect money from the creditor or debt collector’s violation of the automatic stay.


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