Chapter 7 and 13 Automatic Stay

The Automatic Stay is part of the US Bankruptcy law. It provides a certain degree of comfort and protection for debtors. It is a very useful tool in a lot of ways. If you’re considering declaring bankruptcy, you should review your case with your attorney first.

The automatic stay of the bankruptcy court

Immediately after your petition is filed electronically with the Bankruptcy Court, the automatic stay goes into effect. The U.S. Bankruptcy Court is a Federal Court and supersedes any state action against you.

All creditors, and garnishments and lawsuits and foreclosures are immediately and instantly ‘frozen’ or ‘stopped’ the nano-second your petition is electronically filed.

You don’t receive a discharge of your debts until 90 days after you have filed your bankruptcy petition and the Court waits an additional 10 days to determine if any creditor takes an appeal in your case.

Therefore, after 100 days, the Court mails a Notice of Discharge to you, your attorney and all the creditors you listed in your bankruptcy petition. You have to be careful to follow the rules in order to receive a discharge of your debts.

What is the Automatic Stay?

Any one in debt can start the bankruptcy process by filing a bankruptcy petition. The petition normally includes a cover page and the bankruptcy schedule. People who file just the cover page immediately get bankruptcy protection provided they file the schedules shortly afterwards.

The bankruptcy court will time stamp the original petition. That time stamp is crucial. It means creditors and collection agencies must stop and any credit actions against you immediately.

Creditors must stop calling you, writing to you, trying to repossess your assets, going to court against against you and doing anything to try to obtain a judgment. The automatic stay also stops wage garnishments.

In some cases, the government overpays on public benefits and seeks to get those benefits back. The automatic stay will stop the government from seeking those over-payments. Ultimately, you will either have to propose a plan to pay back the government or the government will get relief from the automatic stay.

What can the creditor do during the Automatic Stay?

There are some exceptions to the automatic stay you should review with your bankruptcy lawyer. For instance criminal actions can proceed against you; you still have a continuing obligation to pay child support and alimony.

IRS audits can proceed against you too. If a landlord has a judgment of possession, the landlord can proceed to try to evict you. Efforts by the government to revoke or suspend your driver’s licenses and professional licenses can also continue.

People who filed for bankruptcy within a year prior to the current stay will only have a stay for 30 days. This is meant to prevent people in debt from abusing the automatic stay provisions without going through with the bankruptcy.

Does the Automatic Stay relief apply to Chapter 7 and Chapter 13?

The automatic stay provision applies to both Chapter 7 and Chapter 13 bankruptcies. Chapter 7 is for debtors who have mostly unsecured debts. Chapter 7 debtors are usually being harassed by collection agencies. The automatic stay will stop calls form the collection agencies.

Chapter 13 is for debtors who have secured assets such as a home or a car. Chapter 13 debtors may be facing repossession actions. The automatic stay stops the efforts of creditors to try to repossess a home, a car and other secured assets.

Can creditors get relief from the Stay?

Some creditors can get relief if they show that special circumstances apply. Most unsecured creditors will not be able to get relief from the stay because they have no direct interest in any one asset. Their claims can wait until a debtor has a creditor’s meeting before a trustee.

Creditors with secured interests may try to get relief from the stay to protect their asset. If someone in debt files a Chapter 7, the secured creditor may be able to get a stay. Chapter 13 debtors file a plan in bankruptcy to pay the arrears over a three to five year period and to make the monthly plan.

As long as the you can propose a viable plan and meet the terms of the plan, it is unlikely that a secured creditor will get relief from the stay.

In cases of homes, the trustee will take possession of the home and work to sell the home to get the best possible price so creditors can be paid, debtors can get their exemption and any money left over after all the bills on the home are paid to the debtor.

If a debtor files a bankruptcy just before a foreclosure action even though they have no equity in the home and no ability to pay the loan, then a creditor would be justified in seeking relief from the automatic stay provisions. The key phrase the bankruptcy judge will use to make his/her ruling is whether the stay gives the creditor “adequate protection.”

How long does the Automatic Stay last?

In both Chapter 7, and Chapter 13, the automatic stay lasts for the duration of the bankruptcy unless the creditor gets relief from the stay.

The stay is meant to let the debtor focus on properly requesting a discharge of his/her obligations and/or preparing a plan or means to pay off the creditors.

Complicated issues

Some issues are grey and require a consultation with you bankruptcy lawyer. For instance, tax liens may be difficult to stop through the automatic stay.

What about utilities?

Utilities cannot immediately shut off services if a debtor files a bankruptcy. The debtor will need to provide the utilities with deposits within a short time frame after the bankruptcy petition was filed to keep the utility working.

That pretty much answers a lot of the main questions people may have regarding an Automatic Stay. If some of the above circumstances apply to you and you’re debt are piling up an Automatic Stay could be really helpful in putting a stop to actions against you which may help you get enough time to help sort financial issues out. Speak with a certified bankruptcy attorney in order to ensure all your rights are being upheld.