What Is An Automatic Stay In Florida Bankruptcy?
An automatic stay is a powerful legal tool that comes into effect the moment an individual files a petition for relief through bankruptcy. Its primary purpose is to provide a temporary halt to all collection efforts, foreclosures, and legal proceedings. This allows the individual filing for relief through bankruptcy some breathing room to reorganize finances while under bankruptcy protection.
What Is an Automatic Stay and How Does It Work?
The automatic stay is a powerful legal protection under the U.S. Bankruptcy Code. This protection goes into effect immediately after the bankruptcy case is filed, hence the term “automatic.” This is true for individuals who file Chapter 7 or Chapter 13 bankruptcy and businesses that file Chapter 11 bankruptcy. The automatic stay is designed to provide debtors with immediate relief from creditor actions. Once the automatic stay takes effect, certain creditor actions must halt, including the following;
- Shutting off utilities
- Filing a legal claim against a debtor
- Continuing with a pending legal claim
- Wage garnishment
- Foreclosing on a debtor’s property
- Trying to repossess collateral
- Collection of public benefits overpayment
While an injunction has many benefits, it is vital to note that it also has its limitations. An automatic stay cannot provide protection from all legal actions or debts, including the following;
- Criminal proceedings: Suppose you were charged with a criminal offense. In such a case, the automatic stay will not cover any money owed as a result of the criminal proceeding.
- Some tax proceedings: For example, the automatic stay does not cover IRS audits and can’t stop the IRS from demanding tax returns or issuing tax assessments.
- Pension loans: Employers can continue deducting pension loan payments through wage garnishment even after the automatic stay goes into effect.
- A lawsuit against an individual meant to modify, establish, or collect alimony or child support.
The automatic stay aims to prevent creditors from taking aggressive collection actions and to maintain the status quo while the bankruptcy process unfolds. It automatically goes into effect as soon as the petitioner files the bankruptcy petition with the court. It requires no additional legal action. This legal mechanism stops most creditors from making contact, garnishing wages, or repossessing property. It also halts foreclosure on the home and stops the disconnection of utilities.
How long does an automatic stay last?
The duration of an automatic stay varies depending on the type of bankruptcy and the specifics of the case. If a case is dismissed, the automatic stay is deactivated. In most Chapter 7 bankruptcies, the stay lasts until the bankruptcy trustee administers all the non-exempt assets. In Chapter 13 cases, the stay can last for the three to five years of the repayment plan. However, creditors can request the court to lift the stay under certain conditions.
Another factor that can affect how long the automatic stay remains in effect is the number of bankruptcy cases. If a debtor files another bankruptcy case while they have had a pending case during the prior year, the injunction will only be in effect for one month in the latest case.
Can a creditor still try to collect debts with an automatic stay?
The law prohibits creditors from continuing with collection efforts after the automatic stay goes into effect. However, creditors can petition the court to lift the stay if they believe it impedes their rights. Situations where a court might grant relief from the stay can include:
- The creditor has a secured interest in property, and the property is not necessary for an effective reorganization.
- The property is not adequately insured.
- The property is declining in value and not adequately protected by the debtor.
- A creditor may seek “in rem” relief if the owner delays attempts to foreclose on a mortgage with multiple bankruptcies.
These are just a few exceptions that can apply to an automatic stay.
What are my options if an automatic stay has been violated?
If a creditor violates the automatic stay, the debtor has legal recourse including taking the creditor to court and recouping any funds the creditor may have gathered through garnishment or other methods while the automatic stay was in place.
An automatic stay is an important part of the bankruptcy process, offering a chance to regroup without the immediate threat of creditors’ actions. Understanding how it works, how long it lasts, and what to do in the event of a violation can empower those who are seeking relief through bankruptcy to navigate the process more effectively. If you find yourself in a situation where a creditor violates the automatic stay, consulting with a knowledgeable bankruptcy attorney can provide guidance and help protect your rights under the bankruptcy code.
Contact Us for Legal Help
If you are an individual or business dealing with overwhelming debt and are considering filing bankruptcy, you should talk to a bankruptcy attorney. Contact a Deerfield Beach bankruptcy lawyer at the Law Office of Adam I. Skolnik, P.A., at 561-265-1120 today to schedule a consultation.