What is the Automatic Stay?

 

Bankruptcy's ability to stop collection efforts is one of its main attractions to debtors stressed by harassment from bill collectors. But creditors may be able to get the stay lifted if they can show that it is necessary to do so in order to protect their interests.

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The automatic stay is provided for in §362 of the Bankruptcy Code.

It is an automatic injunction that goes into effect when a person files for bankruptcy.

The purpose of the automatic stay is to provide the debtor with a temporary reprieve from their creditors.

When the automatic stay is in effect, creditors are generally prohibited from taking any action to collect on a debt. This includes things like calling the debtor to demand payment, garnishing the debtor's wages, or foreclosing on the debtor's home. The automatic stay gives the debtor some breathing room to reorganize their finances and work out a plan to pay off their debts.

The automatic stay is a powerful tool that can provide much-needed relief to someone struggling with overwhelming debt.

But... the automatic stay is not a permanent solution. Creditors may be able to get the stay lifted if they can show that it is necessary to do so to protect their interests.

For example, it is often quite simple for a landlord to get a stay lifted to proceed with an eviction.

And a Chapter 7 bankruptcy won't permanently stop a foreclosure or other collection efforts by secured creditors, but a Chapter 13 bankruptcy can force such collection efforts into a pay-over-time repayment plan.

It's important to consult with a bankruptcy lawyer before assuming that the automatic stay will protect you from further collection efforts in your particular situation.


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Jurisdictional relevance: US

Legal Consumer - Logan, UTLaw. The content of this article pertains to all US states and counties.