How To Use Automatic Stay In Bankruptcy To Stop Creditors

A bankruptcy is so much more than the discharge of debt. If you have been doing your bankruptcy research, you may have come across “automatic stay” a couple of times now. The automatic stay is just as important as the discharge you receive at the end of your bankruptcy. When you begin your bankruptcy petition the law protects the debtor from any debt collecting activity. A bankruptcy is a way of saying to your debtors that you are doing something about the debt you have incurred. Though you may not be able to pay off all your debt, a bankruptcy is a sign of your initiative to pay something back. For this reason, the government prevents any debt collector or creditor from pursuing debt collecting activities while you are trying to figure out how you will pay them back.

A debt can either be paid back in part through a Chapter 13 or may be discharged through a Chapter 7 liquidation. Through a Chapter 13, you are capable of paying back your debt over a three to five-year program In Chapter 7 you essentially pay back with your property. When you pay back with your property, a United States trustee will be in charge of selling your items and using the gains to pay back the creditors you owe. In both instances, as soon as you submit the paperwork for a bankruptcy, you are protected by the automatic stay laws. It does not matter if you are filing under a Chapter 7, a Chapter 13, or a Chapter 11, debtors who file through any chapter in bankruptcy will be protected by the automatic stay.

The bankruptcy automatic stay law is one of the biggest reasons that a person may consider to file a bankruptcy. Individuals who are facing lawsuits, wage garnishments, foreclosure, or who are tired of debt collecting activities may file a bankruptcy in order to stop most debt collecting activities. When a debtor is protected by the automatic stay, it means that a creditor or debtor may not pursue any debt collecting activity. When a creditor or debt collector pursue a debt after the debtor has filed for bankruptcy, they may face lawsuits.

An automatic stay kicks in right after you submit your bankruptcy petition meaning that it does not require a court action. The law kicks in automatically after you submit your documents. Soon after you submit your documents you are free to let your creditors know that you have filed a bankruptcy. As soon as your creditors receive that one-page document stating that you are filing for bankruptcy, they may no longer pursue your debt. For this reason, the automatic stay is one of the most popular reasons that a person might consider a bankruptcy. In fact, many debtors file emergency bankruptcies in order to benefit from the automatic stay.

If you are facing foreclosure, wage garnishments, and lawsuits for failure to pay off a debt, it might be a good time to speak with a lawyer. Upon filing for bankruptcy you will be able to stop most debt collection and you may be able to keep all of your property if you file through Chapter 13. Speaking with an attorney will allow you to have a better understanding of your situation and will allow you to understand how a bankruptcy will affect your case.  Debtors in the state of California may contact the Bankruptcy Attorney at 424-285-5525. California is a state that practices its own set of bankruptcy codes that differ from the federal codes so make sure that you speak with a local attorney.

The Automatic Stay

The Automatic stay is an interjection that kicks in right after you file your bankruptcy petition papers. As mentioned earlier, the court does not need to approve your bankruptcy before you can benefit from the automatic stay. The automatic stay is mentioned under the Title 11, Section 362, under the Bankruptcy Code. Though the law is known to stop all debt collecting activity, it is important to know that it does not prevent all debt collectors from pursuing a debt. First, let's begin by understanding how the automatic stay laws apply to debt collection. Under Section 362, the following cannot be pursued by a creditor or debt collector after a debtor has filed a bankruptcy. Section 362 explains:

  • debt that was incurred before or during a bankruptcy many not be pursued by any debt collector
  • a debt collector may not enforce the provisions of a lawsuit against a debtor or his property during the time or before the commencement of a bankruptcy
  • a debt collector may not repossess the property of a debtor
  • a debt collector may not enforce or create a lien against a property of the estate
  • a debt collector may not enforce, create, or modify a lien against property of a debtor
  • a debt collector may not pursue a claim against the arose before the debtor has filed for bankruptcy

Under this section of the law, it is illegal for a debt collector to pursue certain actions. In plain English, a debt collector may not pursue the following:

  • Foreclosure: Many individuals who file for bankruptcy do so because they wish to keep their property. A foreclosure occurs when the debtor fails to make payments to his mortgage loan. If you fail to pay your property, your home will be repossessed and sold off. When you file for bankruptcy, you can keep your home and prevent any debt collector from repossessing the property. Debtors that wish to keep their property after they have filed for bankruptcy should consider a Chapter 13. In foreclosure cases, the debtor will be able to catch up on payments through a repayment program under Chapter 13. If the debtor choosing to file a Chapter 13 they may make payments to their debt for the next three to five years.
  • Wage Garnishment: When you creditors are tired of waiting for payment or you have fallen so behind on your payments that there is no way you will pay them back, they may pursue a wage garnishment. A wage garnishment is when your creditor is paid directly by your employer. Your employer will receive notice of the wage garnishment and will be responsible for paying a certain amount to the creditors from your paycheck. When a person has multiple wage garnishments it may lead to difficult times. Wage garnishments could be a very big problem for debtors that are struggling to get by. When a debtor is living paycheck to paycheck and they receive notice of a wage garnishment, it is best to speak with an attorney to see what is the best way to handle your case.
  • Home Evictions: Debtors that are facing an eviction may buy themselves some time after they file for bankruptcy. In most cases, an automatic stay will prevent your landlord from seeking court permission to kick you out. However, if the landlord is capable of proving that you are dangerous, that you have used illegal drugs on the premise, or that you have misused the property, they may proceed with an eviction. In most courts, the law will side with the landlord so if you receive notice of eviction, it may help to know that the automatic stay may buy you some more time. If you are facing eviction, it might be a good time to speak with a family member or friend while you sort out your bankruptcy.
  • Disconnect Utilities: Before your utility company decides to cut your bill, you may have received a red letter notice. The notice to cut your utilities is a clear indicator that you are falling behind on crucial payments. When you live paycheck to paycheck and you are not able to make essential payments, you may want to consider a bankruptcy. An automatic stay will usually prevent a company from discontinuing the utility services. In this case, the automatic stay may keep your utilities on for 20 days or until the automatic stay is lifted.

When you file for bankruptcy, the debtor is protected from any activity mentioned above. In addition, a credit or debt collector may not call, email, leave voicemails, fax, or text any debtor while he or she is undergoing a bankruptcy. An automatic stay is a very powerful protection under the law, but there are times when an automatic stay will not protect your assets. In most cases, debt collecting activity due to criminal activity or child/alimony support, is considered lawful. There are times when an automatic stay will not protect you from debt collecting activity. To learn more, you may read on, but you are encouraged to speak with an attorney. An attorney will be able to analyze your case and determine if you are in a contract that allows a debtor to pursue your debt after bankruptcy. In addition, there are many ways that an automatic stay may be lifted. To have a clear understanding of your situation, contact an attorney today.  

What are the limits of an automatic stay?

  • Child and Alimony Support: Debtors that are facing child support will still be required to keep up with their alimony or child support responsibilities. An automatic stay does not prevent any child support or alimony debt collecting activity. The automatic stay will not be capable of stopping a family court lawsuit.
  • Criminal Charges: An automatic stay may not stop a court from punishing criminals with fines. Though you may not be charged at the time of your bankruptcy, you will still be responsible for paying back the fine.
  • Taxes: Debtors that are behind on tax payments may not be completely protected by automatic stay laws. When you owe money to the Internal Revenue Service (IRS) you may still be audited and be required to make payments to your tax debt. However, an automatic stay will prevent the IRS from establishing a lien on your property. A lien allows the creditor or in this case the IRS to receive some form of payment after a property has been sold. For example, if you have a lien on your home, you will be required to pay back the debt you owe from the earnings after you sell the house.

A bankruptcy can stop many debt collecting activities, but you should not assume that an automatic stay will prevent any debt collecting activity. If you are an individual with children and you have either separated from your spouse or partner, you will be required to keep up with child support payments. In addition, if your spouse has filed an alimony claim you may still be required to keep up with those payments even while you are undergoing a bankruptcy. Furthermore, a creditor or debt collector may ask the bankruptcy court to lift the automatic stay. If the creditor or debt collector is able to prove that you have committed fraud or that the information of your petition is inaccurate, the court may lift the automatic stay. Be effectively removing the injunction, the debt collector may pursue a debt.

One of the many benefits of a bankruptcy, aside from the discharge of debt, is the automatic stay law. The automatic stay law prevents any debt collecting activity after a debtor has filed a bankruptcy. When a debtor files a Chapter 7 or a Chapter 13, they will be protected by the automatic stay clause. In addition, larger corporations, municipalities, and businesses also benefit from the automatic stay law. If you are considering a bankruptcy for immediate protection under automatic stay, you should speak with an attorney about your case. To contact the Bankruptcy Attorney, you may contact our Los Angeles Bankruptcy Attorney at 424-285-5525.

Remember that if you are in the state of California, you will be required to work through the California bankruptcy codes. In California, you may not exempt property using the federal exemptions so you will want to speak with a local attorney. Nonexempt laws guide how the bankruptcy will turn out so it is important to have an attorney who is capable of guiding your case through the California bankruptcy law.