What Is the Automatic Stay in Bankruptcy?

When debts become overwhelming for individuals and businesses, filing for bankruptcy can offer some relief from creditors. Individuals have the option of filing Chapter 7 or Chapter 13 bankruptcy, whereas businesses have the option of filing Chapter 11 bankruptcy. The automatic stay is one of the most crucial protections U.S. bankruptcy laws provide for debtors. The automatic stay is also referred to as an injunction. An automatic stay is one of the most powerful reasons to file for bankruptcy. This legal provision temporarily halts collection efforts against debtors. Below, we discuss more about what an automatic stay is in bankruptcy and how it works.

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.

Duration of the Automatic Stay

The automatic stay remains active throughout the bankruptcy proceedings. If a case is dismissed, the automatic stay is deactivated. How long the automatic stay remains active depends on the bankruptcy type. 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.

What Happens After the Automatic Stay Is Lifted?

Creditors can ask the court to lift the automatic stay under certain circumstances. For example, they can do so if the debtor’s assets are likely to lose significant value before the case is resolved. Lifting the automatic stay means that creditors can resume collection efforts.

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 consolation.