When you're buried under a pile of bills, your checking account is empty and your phone is ringing off the hook, it can feel like all hope is gone and the light at the end of the tunnel has burned out. Many people who file for bankruptcy (debtors) feel like they're never going to get relief, and the decision to file for bankruptcy is usually made after all other options have been exhausted. The moment you file for bankruptcy, something called the "automatic stay" goes into effect.
What Is the Automatic Stay?
In bankruptcy, the automatic stay is a preliminary injunction that immediately stops most lawsuits filed against you and protects your money and property from creditors. The automatic stay immediately stops creditors from continuing to try and collect the debt from you. It also stops all collection lawsuits that have been filed against you and protects your property from creditors, collection agencies and government entities.
The automatic stay is automatically applied, and there's no specific action that you need to take besides filing a bankruptcy petition. The automatic stay applies for both Chapter 7 and Chapter 13 bankruptcy cases.
What Does the Automatic Stay Prevent?
The automatic stay affects many common situations, including:
- Foreclosure: If your home mortgage is being foreclosed on, the automatic stay will temporarily stop the proceedings. However, this isn't a permanent stay, and the creditor will be able to proceed with the foreclosure sooner or later. This will depend upon the steps that the creditor takes after the bankruptcy is filed.
- Eviction: Similar to foreclosure, the automatic stay puts a temporary stop on your eviction, but under the new bankruptcy law, it is for landlords to proceed with an eviction. The automatic stay won't affect eviction proceedings if your landlord already has a judgment of possession against you. In many cases, the automatic stay will give you a few weeks at most, but at some point, your landlord will ask the bankruptcy court to lift the stay and allow the eviction.
- Utility disconnections: If you're behind on your utility bills and your utility company is threatening to shut off your water, electric or telephone service, the automatic stay in your bankruptcy case will prevent the disconnection of these services for at least 20 days.
- Wage garnishments: A wage garnishment is when the court issues an order that requires your employer to withhold a certain amount of your paycheck and send it to a creditor until your debt is paid off. Filing for bankruptcy stops garnishments, meaning you will take home a full salary while the automatic stay is in effect.
- Collection of overpayments of public benefits: If you receive public benefits and were overpaid, the agency is entitled to collect the overpayment out of your future checks. Once the automatic stay is in effect, this collection stops.
Are There Exceptions?
There are a few instances where the automatic stay won't help you. Creditors can get around the automatic stay by asking the bankruptcy court to lift the stay if they don't believe it's serving its intended purpose. If a creditor files for relief from the stay, you need to defend the stay if possible.
- Certain tax proceedings
- Support actions
- Criminal proceedings
- Loans from a pension
- Multiple bankruptcy filings have special requirements.