The Automatic Stay
The automatic stay is the shield that protects a debtor while in bankruptcy. This means that when a debtor files for bankruptcy, a creditor is prevented from taking any action against the debtor, the property of the debtor, or the property of the bankruptcy estate. In other words a creditor cannot call, they cannot send a demand for payment, they cannot repossess a car, and they cannot foreclose on a house. The automatic stay goes into effect when the debtor files bankruptcy; not when the creditor gets the notice.
The reason for the automatic stay is that it allows the debtor relief from their creditors, so that the trustee can administer the bankruptcy estate. In a chapter 7 case the trustee can determine the assets to be liquidated and can allow them to liquidate the assets. In a chapter 13 case it allows the plan of re-organization to run its course.
There are a few exceptions to the automatic stay. For example, a suit for domestic support obligations (i.e., alimony or child support) are not stayed. Some other examples include: criminal cases, divorce proceedings, assessment of taxes.
In a chapter 13 case, a cosigner will be protected by the automatic stay. In all other chapters, the automatic stay will only protect the debtor and the debtor’s property. The stay typically ends when the case is dismissed or closed.
If a second bankruptcy case is filed within one year of a previous case, the automatic stay only lasts 30 days. This means that in a chapter 13 case the debtor will usually have to ask for the stay to be extended. In any additional cases filed after the second case within 12 months, there is no automatic stay. A motion to impose stay must be filed to create the automatic stay. For either of these motions, the debtor must show by a preponderance of evidence that the current case was filed in good faith.
The stay can also be lifted. A party in interest, usually a creditor, can request relief from the automatic stay. They will typically do this if the debtor is not making payments, or if they are failing to provide adequate protection to the creditor.
The automatic stay is a powerful tool; which can help many debtors get the fresh start that a bankruptcy offers. For more information about bankruptcy, contact the experienced attorneys at the Fears Nachawati Law Firm by clicking here or calling our office at 1.866.705.7584.