What is the Automatic Stay in Bankruptcy?
A Plain Language Explanation by the San Jose, California, Bankruptcy Attorneys at the Law Offices of Jon G. Brooks
The Automatic Stay in bankruptcy is one of the fundamental debtor protections provided by the Bankruptcy Code. Whether you are filing Chapter 13 or Chapter 7 bankruptcy, the Automatic Stay goes into effect immediately and automatically when you file for bankruptcy protection. Under the Bankruptcy Code (11 U.S.C. 362), the filing of a bankruptcy under any chapter of the Bankruptcy Code automatically triggers an injunction that prohibits most creditors from the commencement or continuation of any judicial, administrative, or other action or proceeding against the debtor that actually was commenced or could have been commenced prior to the bankruptcy filing.What does the Automatic Stay do for me?
Simply put, the Automatic Stay is a tremendous tool for debtors in that it serves to prohibit most contact and continuing collection activity from creditors on debts that are owed. For example, the Bankruptcy Automatic Stay prohibits:
- Any creditors (including collections agencies) from corresponding with you at all, including phone calls, letters, etc.
- Collection efforts from most entities to whom you owe money.
- Any creditor from starting or continuing a law suit against you.
- Repossessions.
- Foreclosure proceedings and Trustee Sales.
- Wage Garnishments or levies, even if garnishment orders are already in effect.
There are certain exceptions in which the Automatic Stay in bankruptcy cannot help you. These include items such as certain tax audit proceedings with the IRS, and support actions such as collection of child support or alimony. Additionally, the Automatic Stay can automatically terminate with respect to certain creditors of secured loans on personal property (most commonly, auto loan lenders) if the debtor fails to reaffirm or redeem such a secured loan within a fairly short period after filing a bankruptcy case. Sections 521(a)(2) and 362(h) of the Bankruptcy code operate to require a debtor with a car loan, for example, to reaffirm the auto loan or else lose the protection of the Automatic Stay. With auto loans, the debtor is required to state his or her intention with respect to the car loan -- whether to keep the car and reaffirm the loan, redeem (pay off) the loan, or surrender the vehicle. If the debtor desires to keep the car, but fails to state his or her intention to reaffirm or redeem, the vehicle, for example, and if he or she refuses to enter into a reaffirmation agreement within a set time period following the filing of the bankruptcy, then the protection of the Automatic Stay expires automatically. This means that the auto lender can legally repossess even before the bankruptcy case is concluded. This provision of the 2005 BAPCPA was a give away to the auto finance companies, and it is a trap for the unwary, so it is imperative that you consult with us about how and whether to keep your vehicle in bankruptcy.
Please also note that under a Chapter 7 Bankruptcy, the Automatic Stay only applies with respect to the debtor. Thus, if you have co-debtors on certain debts, they are not afforded the same protections under the Automatic Stay that you are. However, if you are filing for a Chapter 13 Bankruptcy, a creditor may not pursue a debt against a co-debtor or guarantor, if the debt is a “consumer debt,” which is defined as a debt incurred by a person primarily for personal, family, or household purposes.
How long does the Automatic Stay last?
The Automatic Stay in bankruptcy is neither absolute nor permanent. For most chapter 7 and 13 cases however, it stays in effect until the debtor gets a discharge from his or her debt, the property in question is no longer a part of the estate, or a judge lifts the stay at the request of a creditor, who must file a Motion for Relief from the Automatic Stay.If your creditors are harassing you, our San Jose Bankruptcy Attorneys are here to fight for your rights. If you live in the San Francisco Bay Area, contact us today for a free consultation with a bankruptcy attorney to further discuss the Automatic Stay in bankruptcy. Prior to our appointment, we ask that you download our Personal Bankruptcy Questionnaire, fill it out to the best of your ability, and bring this information to your meeting. Our office is located in San Jose, CA..
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