The Automatic Stay in Bankruptcy

Bankruptcy's automatic stay requires most creditors to stop all collection efforts against the debtor. The automatic stay takes effect automatically when the debtor files the bankruptcy petition. The automatic stay's reach extends to wage garnishments, property attachments, repossessions, foreclosures, and even collection calls and letters.

Designed to stop creditors from seizing property that belongs to the bankruptcy estate, the automatic stay doesn't apply to all collection actions. Read on to learn when the stay applies, which creditors can eventually proceed with collection actions, and more. You'll also learn how bankruptcy's automatic stay affects evictions.

Automatic Stay Protection During Bankruptcy

The automatic stay protects debtors against all collection efforts during the bankruptcy case, unless an exception applies (more below). It lasts until the court denies the bankruptcy discharge or dismisses the case. In that situation, the stay will be lifted, and the debt will return to the status before the bankruptcy. The automatic stay will also end when the bankruptcy case ends. However, if a debt has been discharged, the creditor cannot try to collect it.

Actions Not Stopped by Bankruptcy's Automatic Stay

Not all legal actions are subject to the automatic stay. For instance, it will not stop criminal actions or traffic violation proceedings. The following civil actions can proceed regardless of the automatic stay:

• child support
• divorce
• spousal support
• paternity suits
• child custody or visitation
• domestic violence
• collections of taxes that are not dischargeable, and
• evictions in certain situations.

Temporary Bankruptcy Protection of the Automatic Stay

In some situations, the automatic stay doesn't last long or doesn't attach at all.

You're behind in payments to secured creditors. If you are which creditors on your payments to a secured creditor, it can bring a motion to lift the stay. The creditor can repossess your property if the court agrees to remove the stay. You might be able to keep the property if you and the creditor can agree that you will pay the debt despite the bankruptcy. This contract is called a reaffirmation agreement.

You've filed a previous case or two. If you've filed for bankruptcy within the last year, the stay will last 30 days. If you've filed two, it won't attach at all. You can ask the court to order or extend it in both cases by filing a motion.

You don't file a Statement of Intention. You must file a Statement of Intention within 30 days of filing your bankruptcy petition. This document tells the court what secured property you want to keep and what you want to surrender to your creditor. If you fail to file a timely Statement of Intention, the automatic stay will be dissolved as to your secured property. Take a look at the official Statement of Intention form.

Relief From the Automatic Stay

Creditors can ask the judge to remove the automatic stay to allow debt collection by filing a motion to lift the automatic stay. Secured creditors often do this if the debtor has very little or no equity in the property securing the debt—for example, the debtor's home or car—especially if the debtor has fallen behind on payments.

Enforcing the Automatic Stay

After you file, it's a good idea to let any sheriff's office, employer, or bank processing a wage garnishment, attachment of your bank account, repossession, or foreclosure of the bankruptcy case. The court will also notify all of the creditors you list. But it takes about a week. You'll want to provide the bankruptcy case number and filing date to any creditor taking immediate action.

Creditor Violation of the Automatic Stay

The bankruptcy court can penalize creditors who violate the automatic stay, but this seldom occurs unless the creditor fails to return the property or acts in flagrant disregard of the automatic stay. If you bring a successful action against a creditor for violating the automatic stay, you might be awarded damages plus attorneys' fees. If you're concerned about a violation, contact a local bankruptcy attorney.

Will Bankruptcy Prevent an Eviction?

Bankruptcy law gives landlords the right to evict a tenant, despite the automatic stay, in either of the following cases:

• The landlord got a judgment for possession before the tenant filed for bankruptcy (if the judgment was for failing to pay rent, there is a possible exception to this rule, discussed below).
• The landlord is evicting the tenant for endangering the property or illegally using controlled substances on the property.

If the landlord does not already have a judgment when you file and wants to evict you for reasons other than endangering the property or using controlled substances (for example, if the eviction is based on your failure to pay rent or violation of another lease provision), the automatic stay will prevent the landlord from beginning or continuing with eviction proceedings.

However, the landlord can always ask the judge to lift the stay, and courts tend to grant these requests.

If the Landlord Already Has a Judgment

If your landlord obtained a judgment of possession before you filed for bankruptcy, the automatic stay won't help you. The landlord can proceed with the eviction as if you never filed for bankruptcy. However, an exception might apply if your state's law allows you to stay in your rental unit and "cure" or pay back the rent delinquency after the landlord has a judgment for possession. You must indicate this on your bankruptcy petition and follow the procedural instructions for repaying the back rent.

Endangering the Property or Illegal Use of Controlled Substances

Your bankruptcy filing will not stay an eviction action if you endangered the property or engaged in the "illegal use of controlled substances" on the property. And your landlord doesn't have to have a judgment in hand when you file for bankruptcy. However, your landlord must file and serve a certification showing either of the following:

• The landlord has filed an eviction action against you based on property endangerment or illegal drug use on the property.
• You have endangered the property or engaged in illegal drug use on the property during the 30 days before the landlord's certification.

A landlord who files a certification can proceed with the eviction 15 days later unless, within that time, you file and serve on the landlord an objection to the truth of the statements in the landlord's certification. In that case, the court must hold a hearing on your objection within ten days. If the court denies your objection, the eviction may proceed immediately.