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.
The automatic stay provides debtors with protection against all collection efforts during the bankruptcy case, unless an exception applies (more below). It lasts until the court denies the bankruptcy discharge or the court 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.
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. If the court agrees to remove the stay, the creditor can repossess your property. You might be able to keep the property if you and the creditor can come to an agreement 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. In both cases, you can ask the court to order or extend it 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 would like to keep and what you want to surrender to your creditor. If you fail to file a timely Statement of Intention, the automatic stay in regards to your secured property will be dissolved automatically. Take a look at the official Statement of Intention form.
Not all legal actions are subject to the automatic stay. It will not stop criminal actions or traffic violation proceedings. The following civil actions can proceed regardless of 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.
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 send a notice to 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.
The bankruptcy court can penalize creditors who violate the automatic stay, but this seldom occurs unless the creditor fails to return the property or the creditor acted in flagrant disregard of the automatic stay. If you do 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.