Any chapter of bankruptcy includes an inherent injunction known as the automatic stay. A court order prohibiting the continuation of any action by any creditor against the debtor or the debtor’s property is issued as soon as a bankruptcy case is filed. As soon as creditors and bill collectors become aware of a bankruptcy filing, they must stop all collection efforts.
Even if the creditor hasn’t received official notice or a copy of the filing, the stay is still enforceable. Saying “I haven’t received notification from the court” is not a valid defence. Even co-debtors who are jointly responsible for the debtor’s consumer bills are protected by the stay in Chapter 13 cases.
The debtor is given some breathing room by the automatic stay. All of the debtor’s assets and all of the creditors are brought together in a bankruptcy proceeding so that the rights of everyone involved can be fairly balanced. As a result, the stay guards creditors from being used as leverage by other, more aggressive creditors.
Continue to be limited to repeat filers
The stay might just last a short while if this isn’t your first bankruptcy. The stay is only valid for 30 days if the debtor has recently had a bankruptcy case dismissed. There is no stay at all if the debtor had two or more cases that were ongoing but were dismissed during the last year.
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How long is a stay?
The immediate stay is in place until a creditor asks the bankruptcy judge to lift the stay; the debtor receives a discharge; the case is concluded; or The object is no longer a part of the estate’s property.
Therefore, in a Chapter 7 case, the stay may stop an impending foreclosure on a debt with real estate as security. When the debtor receives a discharge, the stay will end and the creditor will be permitted to continue.
The stay is in place during Chapter 13 for the duration of the Chapter 13 plan.
After discharge continues permanently and after the debtor receives a discharge, the automatic stay is replaced by a permanent injunction that forbids creditors from doing any of the acts with regard to the discharged pre-petition obligations that the automatic stay forbade.
Not during the stay
Not all judicial processes are suspended by the automatic stay.
- The application process for a family support order or its modification
- actions taken to obtain support from assets not owned by the estate
- Tax audits, requests for tax returns, or assessments of taxes.
Crimes are committed
- Taking action to get a family support order or to have one modified
- actions taken to recoup support payments from non-estate property
- Tax assessment, demand for tax returns, or tax audit.
Infractions during the stay
Anyone who knowingly violates the stay in an individual instance is responsible for the real damages they caused. Attorneys’ fees to stop the violation are included in these damages, along with any additional losses the debtor may demonstrate.
Punitive damages may be awarded to the offender in severe cases. The court typically mails creditors’ notices within a few days to a few weeks. If a collection action is imminent, the debtor or the debtor’s attorney may desire to give genuine notice to creditors who could otherwise act without being aware of the stay through phone or fax.
Any action taken by the creditor in contravention of the stay is void or voidable and has no legal effect. The offending party must undo the invalid action and put the debtor back in the same position as before the stay was broken.