When it comes to filing for bankruptcy, one of the benefits for potential filers is the automatic stay.
If someone gets to the point where the debtor feels he or she has no choice but to file for bankruptcy, it is a safe assumption that he or she is at the point where relief from financial stress is needed.
Thus, enters the automatic stay. However, not everyone understands what the automatic stay entails and how it plays into the bankruptcy process.
What Is An Automatic Stay
When bankruptcy is filed, an automatic stay is issued. This “stay” puts a halt to collection activities against the debtor facing bankruptcy. It begins at the start of the case and lasts until the case is closed, either successfully or unsuccessfully.
The automatic stay is immediate, meaning it happens as soon as the case is filed. However, it is then up to the bankruptcy trustee to notify creditors of the case, which is not immediate. This means that the creditors will be subject to the automatic stay before they even get notice of the case.
It keeps the creditors from pursuing collection attempts on the debtor and does a number of other actions, described below.
1.) Prevent Foreclosure: The automatic stay puts a halt to any foreclosure proceedings that are currently ongoing. This happens, even if the debtor waits until the last minute to file for bankruptcy after the foreclosure proceedings have begun.
In the event a Chapter 13 bankruptcy is being filed, late mortgage payments are lumped into a three to five-year repayment plan created with the help of a bankruptcy trustee. This allowance lets the debtor stay in the home while the proceedings are ongoing.
2.) Halt Eviction Proceedings: If the debtor is also facing eviction proceedings for not paying rent, the automatic stay puts a stop to that process, as well. This stay can alleviate a lot of stress on the debtor by keeping a roof over his or her head.
However, if the judgment on eviction proceedings has already happened before bankruptcy was filed, the landlord could still file a motion to lift the automatic stay.
3.) Stop Vehicle Repossession: The automatic stay can also put a halt to any vehicle repossession process. Without a car, how can the debtor keep going to work on a daily basis to get back on his or her feet?
This benefit is huge when it comes to filing for bankruptcy. If Chapter 13 is being filed, the stay can also allow the debtor to keep the car in the end upon the close of the three to five-year repayment plan.
4.) Stop Wage Garnishments: An automatic stay also puts a halt to wage garnishment proceedings with a few exceptions. These exceptions include ones where matter of public policy prevent them from being stopped, such as child support or alimony payments.
A creditor does have the right to file a motion to lift the stay but they must show that good reasons exist to justify this lifting of the stay.
5.) End Collection Harassment: Debt collectors can be harassing. One of the biggest causes for stress on debtors is the constant phone calls and letters from debt collectors.
The stay also puts a stop to these actions, and if a creditor violates the stay, that company faces penalties or fines.
Limitations To The Automatic Stay
If this is not the debtor’s first bankruptcy, he or she may face some limitations to the automatic stay. If repeat filings have occurred, the stay may only last for 30 days.
In addition, creditors do have the right to file a request to lift the stay, and if valid and compelling reasons exist, they may be successful. However, if the debtor is a first-time filer, it is unlikely the stay will be lifted.
What Happens If the Stay Is Violated?
If the creditor violates the stay, he or she will face certain consequences, which can include fines and sanctions.
In addition, if a bankruptcy trustee is notified repeatedly of violations from the same lender, and this is an a repeat occurrence with many debtors, the trustee can go as far as sending the matter to the United States Department of Justice for investigation.
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Facing a bankruptcy can be an intimidating process. We are here to walk you through it every step of the way. If you need assistance, Collins & Arnove can help you. To learn more, and schedule your free consultation, call 972-435-9738 today.