An automatic stay also referred to as a stay, is an automatic injunction that stops creditors, with certain exceptions, from starting or continuing to take actions against a debtor who has filed for bankruptcy. This injunction is especially useful when the debtor is at the risk of being foreclosed on, being evicted, losing basic resources such as welfare benefits, and so on. Under section 362 of the United States Bankruptcy Code, the stay immediately starts when one files for a Chapter 7 or Chapter 13 bankruptcy.
However, in the event of a just cause, a creditor can file and serve a motion of relief from the stay under Section 362(d). In the court granting the motion, the stay can either be adjusted or removed by a bankruptcy judge such that it allows the creditor to resume actions against the debtor or the debtor’s properties. It is also essential to know the exceptions to the automatic stay before filing for Bankruptcy. Section 362(b) of the Bankruptcy Code provides exceptions to the automatic stay. As made by Congress, these exceptions prioritize the rights of certain parties over the need to grant debtors breathing space.
How does the automatic stay protect the debtor against specific actions from the creditor?
- Protection against eviction and foreclosure: automatic stay temporarily halts a pending foreclosure and eviction action.
- Prevention of utility disconnections: the stay stops utility from disconnecting a debtor from service for at least 20 days, and if substantial assurance of payment can be provided, it can be for a more extended period.
- Stopping legal actions from being made against the debtor.
- Halting actions by a creditor to collect the debtor’s properties or create a lien against the properties.
- Preventing the IRS from placing tax liens and discontinuing actions like garnishments.
- Eliminating some older taxes and providing a process to pay back taxes that cannot be wiped out.
In summary, automatic stay provides some form of welcome relief to debtors and gives them a chance to regroup during bankruptcy. However, if a debtor files for bankruptcy more than once in a year, they could lose the automatic stay due to “repeat bankruptcy filings.” Thus, the stay may not last for more than 30 days, and in some cases, won’t be granted at all.
If you would like more information about the automatic stay and bankruptcy, contact a Dallas bankruptcy attorney.