An Automatic Stay is a court injunction which prevents creditors from collecting any debt from you as an entity who has legally filed a petition for bankruptcy. Many of you will have heard of the \”Automatic Stay Provision\” but have never been quite sure how it works and all you need to know is that the simple act of filing for bankruptcy is how the Automatic Stay comes into effect.
Once you\’ve filed for bankruptcy the automatic stay prevents any further legal proceedings, in relation to your debts, to continue against you. In addition, this the Stay also prevents creditors from repossessing any part of your property in an attempt to reclaim monies due to them. A Stay also helps to prevent foreclosure on your home and can also halt any garnishing of your wages that\’s currently taking place. Once the Automatic Stay is in place your creditors are not even permitted to call you to follow up on the debt in question.
In short the Automatic Stay will buy you some time to put together a debt management plan but how this debt is managed will depend on whether or not you file for Chapter 7 or Chapter 13 bankruptcy. You should never confuse the Automatic Stay Provision for some kind of get-out-of-jail-free card because it\’s not – it\’s simply providing everyone with a pause to consider their next step; it does not resolve your debt issues.
Depending on the types of creditors you\’re dealing with some may be granted what is called \”relief\” from the Automatic Stay by a bankruptcy court. What this means for you is that if the creditor can prove the Automatic Stay doesn\’t offer them adequate protection in being able to reclaim the monies or property due to them they may be granted either cash payments or a new or additional lien on any property you might own. This exception was granted by the United States Congress in 1994 to prevent certain debtors from taking advantage of and abusing the provisions offered by an Automatic Stay i.e. running out on their debts.
It\’s also important that you know that in 2005, the United States Congress also passed two additional exceptions in addition to the above \”relief\” for creditors, these exceptions are designed to protect the interests of the landlord of any property you might currently occupy or live in. The first exception is that if the landlord had commenced the process of evicting you before you declared bankruptcy that eviction can and will continue. The second exception for allowing eviction is if the tenant has used illegal substances on the property or has been involved in endangerment of the property.
When you file for bankruptcy the Automatic Stay Provision will not prevent or stop the payment of child support, alimony, paternity suits, evictions (as indicated above), driving license suspension, suspension of any professional licenses, compensation payments to any victims you may have, court fines for civil or criminal violations and/or financial proceedings against you in relation to any act of fraud on your part.
It\’s important you not only understand that an Automatic Stay doesn\’t cover all of your financial and personal dealings and that in many cases it may only be a temporary solution and you would be wise to consult with a bankruptcy attorney for advice specific to your circumstances.