What to Know About the Automatic Stay in Bankruptcy
When you file for bankruptcy, one of the most powerful protections you receive is the automatic stay. The automatic stay is a court order that immediately halts most collection actions against you, providing relief from creditors while your bankruptcy case is processed.
This legal shield can give you the time and space to reorganize your finances without the pressure of wage garnishments, repossessions, foreclosures, or lawsuits. Consult a Los Angeles bankruptcy attorney to find out how the automatic stay works, what it covers, and the exceptions you should know.
What Is the Automatic Stay?
The automatic stay is triggered as soon as a bankruptcy case is filed—whether it’s Chapter 7 or Chapter 13. It stops most creditors from taking any further action to collect debts, such as sending collection letters, calling you, filing lawsuits, or taking your wages. This immediate protection is intended to give debtors breathing room to address their financial situation under the supervision of the bankruptcy court.
Once the automatic stay is in place, creditors must cease their collection efforts. If they continue to contact you or attempt to repossess property, they are violating the law, and you may be entitled to legal recourse, including damages.
What Actions Does the Automatic Stay Halt?
The automatic stay provides broad protection for a variety of collection efforts, including:
- Wage Garnishment: If your wages are being garnished due to unpaid debts, the automatic stay will immediately stop the garnishment, allowing you to take home your full paycheck again.
- Foreclosure Proceedings: If your home is in foreclosure, filing for bankruptcy under Chapter 13 can halt the process and give you an opportunity to catch up on missed mortgage payments through a repayment plan.
- Vehicle Repossession: For individuals at risk of losing their car due to missed loan payments, the automatic stay can prevent repossession. In Chapter 13 bankruptcy, you can include missed car payments in a repayment plan and keep your vehicle.
- Lawsuits: If you’re being sued by a creditor, the automatic stay will stop the lawsuit from proceeding. The stay can halt legal actions for unpaid debts, including credit card debts, medical bills, or personal loans.
- Utility Shut-offs: If you’ve fallen behind on utility payments and are at risk of losing electricity, water, or gas services, the automatic stay prevents utility companies from shutting off these services for at least 20 days.
- Eviction: In some cases, the automatic stay can temporarily halt eviction proceedings. However, this protection is limited and does not prevent a landlord from proceeding with eviction in all circumstances.
- Collection Letters and Phone Calls: Once the automatic stay is in place, creditors must stop all collection efforts, including calls, letters, and emails demanding payment.
How Long Does the Automatic Stay Last?
The automatic stay remains in effect for the duration of your bankruptcy case, but the length of time depends on the type of bankruptcy you file. In a Chapter 7 bankruptcy, the stay usually lasts for three to four months until the case is completed and eligible debts are discharged. In a Chapter 13 bankruptcy, the stay can last three to five years while you complete a repayment plan under court supervision.
Creditors can request that the court lift the stay, particularly if they have a valid reason to proceed with collection efforts. For example, if you’re behind on mortgage payments and unable to catch up, a lender may ask the court to lift the stay to proceed with foreclosure. In these cases, the court will evaluate the circumstances and decide whether to grant the creditor’s request.
Exceptions to the Automatic Stay
While the automatic stay offers broad protection, there are several important exceptions where the stay does not apply:
- Child Support and Alimony: The automatic stay does not halt the collection of child support or alimony payments. If you owe unpaid support, your obligation continues during bankruptcy, and your wages may still be garnished to fulfill this debt.
- Criminal Proceedings: The automatic stay does not stop criminal proceedings, including fines or restitution related to criminal cases.
- Recent Bankruptcy Filings: If you’ve filed for bankruptcy in the past year and the case was dismissed, the automatic stay may be limited or may not take effect at all. If you’ve had multiple bankruptcy filings within a short period, the court may restrict your ability to use the automatic stay to protect yourself.
- Certain Tax Liabilities: The automatic stay does not stop all tax collection efforts, especially for recent tax debts. While it can halt some actions by the IRS, like wage garnishment or property seizure, it won’t prevent the IRS from conducting audits or assessing taxes owed.
- Eviction Under Certain Conditions: If your landlord obtained a judgment for possession of the property before you filed for bankruptcy, the automatic stay will not stop the eviction process. However, if you are being evicted for reasons other than nonpayment, such as damaging the property, the stay won’t protect you either.
Violations of the Automatic Stay
Once the automatic stay is in place, creditors who violate it by continuing their collection activities may face penalties. If a creditor continues to contact you, repossess property, or garnishes wages, they are in violation of the stay. In such cases, you can notify the bankruptcy court and seek relief. The court may impose fines, penalties, or damages against the creditor for violating the automatic stay.
When the Automatic Stay Ends
The automatic stay typically ends when your bankruptcy case is completed or dismissed. In Chapter 7, the stay ends when the court discharges your debts, while in Chapter 13, it lasts for the entire repayment period, unless lifted earlier by the court.
If a creditor successfully petitions the court to lift the stay, they may resume collection activities, such as repossession or foreclosure, even before your bankruptcy case is concluded. If you’re concerned about the potential for creditors to lift the stay, consult with a bankruptcy attorney to protect your assets and create a strategy to manage your debts.
Contact Wadhwani & Shanfeld
The automatic stay is one of the most powerful tools in bankruptcy, offering immediate relief from creditor harassment and collection actions. Whether you’re facing foreclosure, repossession, or wage garnishment, the automatic stay gives you the breathing room you need to reorganize your finances and find a path forward. While there are some exceptions and limitations, for most people, the stay offers essential protection during one of the most stressful financial periods of their lives.
If you’re considering bankruptcy and want to learn more about how the automatic stay can help you, contact Wadhwani & Shanfeld. Our experienced bankruptcy attorneys can guide you through the process and help protect your assets from creditors. Reach out today for a consultation and take the first step toward financial relief.
Sources:
cacb.uscourts.gov/faq/automatic-stay-what-it-and-does-it-protect-debtor-all-creditors
americanbar.org/groups/gpsolo/resources/ereport/archive/automatic-stay-bankruptcy-overview/
law.cornell.edu/uscode/text/11/362
