One of the first things that happens after filing for bankruptcy is the implementation of an automatic stay. An automatic stay is a court order that immediately compels lawsuits and other collection actions to cease, including those filed by a debt collection agency or creditor. A stay will also prevent creditors from repossessing your vehicle or seizing other property while the stay is in effect.
The automatic stay also blocks the loss of utilities, eviction proceedings, foreclosure, and wage garnishment. This article will discuss these protections in more detail.
What the Automatic Stay (Temporarily) Prevents
Here’s how the automatic stay affects some common scenarios:
Foreclosure: The automatic stay will halt a lender’s foreclosure proceedings on your home. However, the next step will depend on whether you file Chapter 7 or Chapter 13 bankruptcy. If you want to remain in your home, Chapter 13 bankruptcy is typically a better solution, as it allows you to make all back payments through a court-approved three—to five-year repayment plan.
However, Chapter 7 bankruptcy typically does not allow you to keep your home if you’re behind on payments. In this case, the stay will only provide temporary relief but not save the home.
Evictions: If you are in the process of an eviction, the automatic stay might help temporarily. If your landlord has already obtained a judgment of possession against you at the time of the bankruptcy filing, the automatic stay won’t influence those proceedings, and the landlord can continue. Additionally, if the landlord claims that you’ve caused damage to their property – or if they can prove controlled drug use – the automatic stay won’t provide any protection against eviction.
Public Benefit Overpayment Collections:
If you have received an overpayment of public benefits, the agency is typically entitled to reclaim the overage from your future payments. If you are no longer eligible for benefits, they can solicit the money from you directly. The automatic stay halts these collection efforts unless fraud has taken place.
Wage Garnishments: Filing for bankruptcy results in the cancellation of garnishments from your paycheck. You will be able to discharge credit card balances and personal loans that were behind the garnishment. However, it is important to point out that child support and alimony won’t be discharged. In the case of a Chapter 7 filing, you will remain responsible for those debts. The debts will be paid off in full through a Chapter 13 repayment plan.
Utility Shut-Offs: If a utility company threatens to disconnect your utilities (water, electric, gas, or telephone) due to non-payment, the automatic stay will work to delay the disconnection for at least 20 days.
What the Automatic Stay Won’t Prevent
There are circumstances that cannot be helped by the automatic stay. These include:
Specific tax proceedings: The automatic stay temporarily prevents the IRS from creating a tax lien or seizing your income/property. However, the IRS can still audit you, issue a tax deficiency notice, demand a tax return, and issue a tax assessment.
Family support actions: A bankruptcy filing won’t halt a case brought to establish, modify, or collect child support or alimony, nor will a paternity lawsuit.
Criminal proceedings: The automatic stay doesn’t have the power to stop a criminal proceeding, nor eliminate a sentence of community service or obligation to pay a fine. If the fine was applied as a punishment, you will be required to pay.
Pension loans: Even if an automatic stay is in place, your employer can withhold a portion of your income to repay a loan from most job-related IRAs and pensions.
How Long Does the Stay Protect You?
In most scenarios, the automatic stay will protect the filing party for the duration of the Chapter 7 case. In Chapter 13, the automatic stay is considered in place until the court “confirms” or approves the Chapter 13 repayment plan. Once confirmed, creditors are required to adhere to payment terms as long as future payments are received on time.
Important to Note: If you filed for bankruptcy during the previous year, the stay would last only 30 days. If you filed for bankruptcy twice during the previous year, the bankruptcy court typically won’t approve an automatic stay at all. In both situations, a motion can be filed with the bankruptcy court asking for automatic stay protection.
In our next blog, we will discuss what happens when creditors file to lift the automatic stay.
Richard V. Ellis is a Sarasota-based bankruptcy attorney with decades of experience helping people like you. Don’t get discouraged—get help!
