Bankruptcy’s Automatic Stay Stops Creditor Actions

When you file for either Chapter 7 or Chapter 13 bankruptcy, the courts issue an automatic stay that stops all creditor actions, including lawsuits against you and your property. Creditor actions that may be immediately stopped are:

  • Wage garnishments
  • Utility cut offs
  • Creditor phone calls and letters demanding payment
  • Property seizure
  • Eviction proceedings
  • Foreclosure proceedings

For many debtors, the immediate cessation foreclosure and utility cut-offs is one of the biggest benefits of filing for bankruptcy.

Are there actions not stopped by the automatic stay?

The automatic stay is one of the major advantages of filing for bankruptcy. However, it does not apply to all collection actions. Among the procedures that are not stopped by an automatic stay are:

  • Proceedings to collect child support and alimony
  • IRS audits
  • Criminal proceedings

Can a creditor have the automatic stay lifted?

The automatic stay takes place immediately when you file for bankruptcy. Creditors may file a motion with the court to lift the automatic stay. The ones that generally succeed include:

  • If you have filed under Chapter 13, any creditor to whom you have not made a timely payment
  • If you have filed under Chapter 7, any secured creditor, if the value of the asset secured is insufficient to pay the debt
  • Any creditor that can demonstrate that you obtained the debt with them through fraud or in bad faith (e.g., you obtained credit with them right before filing for bankruptcy)
  • Any landlord who needs to evict you for nonpayment of rent

Note that because bankruptcy is a court of equity, any creditor that shows cause is eligible to request a lift of the automatic stay — but the burden is on that creditor to prove to the court that an exception should be made in their case. A bankruptcy attorney can defend you from having the stay lifted for any creditor.

Note that if you fail to comply with any of the trustee’s requests for documentation or if you fail to complete the required financial management court, your bankruptcy case may be dismissed and the stay lifted for all creditors. Otherwise, the automatic stay normally stays in effect until your bankruptcy case is finished. This usually means the trustee has entered a settlement and your debts are discharged or, in the case of Chapter 13 bankruptcy, until you have completed your payment plan.

Filing for bankruptcy can bring relief to debtors and an immediate stop to creditor actions, but it is complicated. If you believe you need a fresh start and might benefit by filing for bankruptcy, contact an experienced bankruptcy attorney for a consultation.

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