by: Kathleen Michon, J.D.
Bankruptcy’s automatic stay requires most creditors to stop all collection efforts against the debtor. The automatic stay takes effect automatically upon the filing of the bankruptcy petition. The automatic stay’s reach extends to wage garnishments, property attachments, repossessions, foreclosures, and even collection calls and letters.
The automatic stay is designed to stop creditors from seizing property that belongs to the bankruptcy estate and property that is exempt under bankruptcy law.
Despite its powerful effect, the automatic stay does not apply to all collection actions, nor is it permanent for every type of debt. Read on to learn when the stay does and doesn't apply, which creditors may eventually proceed with collection actions, and more.
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 may be awarded damages plus attorneys’ fees.
After you file your bankruptcy petition, it is a good idea to send a copy of the court stamped first page of the bankruptcy petition to any sheriff's office or bank that is processing a wage garnishment or attachment of your bank account. If you think your car is about to be repossessed, you should notify the creditor who is financing your car that you have filed bankruptcy.
You don't have to do this – the court will send a notice to all of the creditors you list in your mailing matrix. But it might get creditors off your back more quickly.
In some situations, the automatic stay is only temporary.
You are behind in payments to secured creditors. If you are behind on your payments to a secured creditor, it can bring a motion to lift the stay (remove the stay). If the court agrees to lift the stay (which is likely), the creditor can repossess your property. You may 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 is called a reaffirmation agreement.
You do not file a Statement of Intentions. You must file a Statement of Intentions within 30 days of filing your bankruptcy petition. This documents 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 Intentions, the automatic stay in regards to your secured property will be dissolved automatically.
If the debt does not fit into one of the exceptions discussed in this article, the automatic stay will provide debtors with protection against all collection efforts during the bankruptcy case. If the bankruptcy discharge is denied or the case is dismissed, the stay is lifted and the status is returned as to how it was before the bankruptcy. Once the bankruptcy case is over, the stay ends. However, if a debt has been discharged, the creditor can no longer try to collect it from you because you no longer owe it.
Not all legal actions are subject to the automatic stay. It will not stop criminal actions nor will it stop proceedings for traffic violations. The following civil actions may proceed regardless of the automatic stay:
If you have previously filed a chapter 7, 11, or 13 bankruptcy that was dismissed within one year of the second bankruptcy, the automatic stay will end after 30 days unless you make a motion demonstrating that your second bankruptcy filing was made in good faith. If you had two pending cases in the past year, the automatic stay won't apply at all -- unless you make (and win) a motion before the court.
Creditors may go into court and ask the judge to remove the automatic stay as to the collection of their debt. This is called making 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). (To learn more about lifting the automatic stay, see When Can a Creditor Lift the Automatic Stay?)