An injunction known as automatic stay is enforced when you file for bankruptcy. This prevents creditors from taking any sort of collection action against you. Usually, the automatic stay starts immediately after filing for a Chapter 7 bankruptcy petition. As a result of the automatic stay, lawsuit filing, telephone harassment, wage garnishment, etc., cannot occur.
What does automatic stay help you with?
The automatic stay prevents all sorts of collection lawsuits, creditor harassment, and collection actions. It remains in place till your chapter 7 bankruptcy case lasts. The automatic stay can temporarily or permanently stop the following actions:
- Civil lawsuits to collect debts – If the debt can be discharged through bankruptcy, the automatic stay can prevent the lawsuit. Upon completing your bankruptcy chapter, the debt is discharged, the lawsuit cannot be initiated again.
- Disconnection of utilities – Bankruptcy filing can prevent utilities from being disconnected. This provides you time to pay off the bills so that power is not cut off.
- Prevent foreclosure – The automatic stay temporarily prevents foreclosure proceedings and provides you with time to catch up on mortgage payments. After completing your bankruptcy chapter, the mortgage debt should be wiped out. The company cannot collect the money owed to them by selling the home.
- Stop eviction – Automatic stay also temporarily stops an eviction. If you are behind your rent payments, the respite is temporary. Filing for bankruptcy under Chapter 7 provides you with additional time to either catch up on the rent payments or find a new residence. If the landlord already has an eviction order, the court may side with the landlord. Any past rent payments you owe shall be wiped out upon completing your bankruptcy case.
- Stop repossession – All collection actions, including repossession, are stopped temporarily with the automatic stay. If the creditor has a lien on the vehicle, it can repossess the car after your bankruptcy case is over. If you wish to keep the car, you need to work out an arrangement with the lender or find another vehicle.
- Prevent wage garnishments – The credit card company with a wage garnishment order cannot pursue this with automatic stay in place. Your company cannot withhold money from your pay as these debts are usually discharged through your Chapter 7 bankruptcy case.
What automatic stay cannot prevent?
The automatic stay does not cover actions regarding alimony or child support, any criminal proceedings, loans taken against your retirement or pension accounts, tax audits, or some other actions by government agencies, and debts you incurred after filing for bankruptcy. If you had filed for a bankruptcy case earlier in the same year, the automatic stay in place for only 30 days unless the debtor asks for an extension by the court. If you had filed three bankruptcy cases in a single year, the automatic stay is not granted without a motion and a hearing. The court may or may not grant an automatic stay in this case.
Exceptions to the automatic stay
The automatic stay is terminated if you fail to file the Statement of Intention (which specifies what you wish to do with your debts) within 30 days of Chapter 7 bankruptcy filing. You can either surrender your property (in which case you will not owe anything after bankruptcy), redeem it (pay a lumpsum amount to keep the property), or reaffirm the debt (which makes you liable to pay the debt after bankruptcy discharge to keep the property). If the creditor asks to modify the automatic stay, the court may make an exception.