Bankruptcy Filers: What is the Automatic Stay?

Filing for bankruptcy is quite useful for many honest, hard-working people who need some help catching up with their finances. Although many (rightly) regard bankruptcy as a last resort to get out of financial trouble, it is not the doomsday scenario you’ve heard about. One of the most attractive features of a bankruptcy filing is the automatic stay. 

The automatic stay is an injunction that immediately goes into effect as soon as an individual or business files for Chapter or Chapter 13 bankruptcy. This injunction automatically stops certain civil actions and collection attempts by many creditors. This gives debtors a chance to breathe amid all the telephone calls, emails, and texts from collection agencies. 

What Does the Automatic Stay Prevent? 

Anyone who’s had a substantial amount of debt for more than a few months can attest to the doggedness of creditors and collection agencies. The constant phone calls coupled with an impending foreclosure or repossession can cause significant distress for debtors. If a debtor decides that bankruptcy is the best way out of his financial troubles, he or she will file for bankruptcy and work with various entities (including government officials and creditors) to settle the case. Depending on the type of bankruptcy you filed for, your case could take several months or several years to settle. During that time, many collection actions are prevented by the automatic stay. 

More specifically, the automatic stay can temporarily: 

  • Stop foreclosure proceedings 
  • Prevent creditors from repossessing vehicles and other collateral
  • Help debtors keep utility services from being shut off
  • Stop collection attempts
  • Cease certain wage garnishments 

The Automatic Stay Does Not Erase Your Debts

This is vital for debtors to know. The automatic stay, by itself, does not absolve bankruptcy filers of debts. In fact, the automatic stay benefits creditors almost as much as debtors, as it gives bankruptcy courts the chance to determine priority rights. Again, the manner in which your debts will be settled depend on a number of factors, most notably the type of bankruptcy you’re using. 

Additionally, don’t count on the automatic stay to stop collection actions related to: 

  • IRS tax liabilities
  • Student loan payments
  • Criminal fines
  • Child support, alimony, or paternity

One last limitation to be aware of is the ability for certain creditors to request—and receive—an exception to the automatic stay. Bankruptcy court won’t automatically approve these requests, and you do have the right to oppose the motion to lift the automatic stay. Still, many creditors are successful with these requests. 

Conclusion

While the automatic stay is a wonderful tool for debtors to catch their breath, it is just that—temporary relief from many collection actions. All bankruptcy types allow filers to enjoy the automatic stay, but the real work for debtors occurs during the duration of the injunction. 

Before you or a loved one files for bankruptcy, be sure to talk it over with an experienced bankruptcy attorney. The Law Office of Ray Garcia, P.A. has helped many debtors get back on their feet and realize a brighter financial future. Call us at (305) 227-4030 to discuss your options with our legal team.