What is an automatic stay when filing for bankruptcy?

On Behalf of | May 8, 2023 | Bankruptcy

Bankruptcy is a legal process that provides a debtor with relief from their debts and an opportunity to start afresh. The automatic stay is put in place when a debtor files for bankruptcy. 

An automatic stay is a court order. It prevents creditors from taking action or trying to collect debts from the debtor. It is a powerful tool that provides debtors with immediate relief from creditor harassment, lawsuits and wage garnishments.

When does the automatic stay go into effect?

The automatic stay is effective immediately upon the filing of the bankruptcy petition. Once it is in place, creditors cannot contact the debtor directly, and all collection activities must stop. This includes phone calls, letters, and any other forms of communication. Creditors are also barred from filing or continuing any lawsuits against the debtor, repossessing property or foreclosing on a home.

What is the benefit of an automatic stay?

The automatic stay gives debtors breathing room to reorganize their finances and develop a plan to pay their debts. During the automatic stay, the debtor can work with their bankruptcy attorney to determine the best action. This may include selling assets, negotiating with creditors or entering a debt repayment plan.

Are there any exceptions to the automatic stay?

There are some exceptions to the automatic stay. For example, it does not apply to criminal proceedings, child support and certain tax debts. Additionally, creditors can petition the court to lift the automatic stay in certain circumstances. For example, if the debtor has no equity in their property, a secured creditor may be able to obtain permission from the court to repossess the property.

The automatic stay is vital to the bankruptcy process. Knowing your legal rights when filing bankruptcy is important to ensure you can protect them.