An automatic stay is a provision in the United States Bankruptcy Code under Section 362. The automatic stay temporarily stops your creditors, collection agencies, government entities, and others from pursuing you for money you owe them.
If you need help stopping creditors from harassing you, and you are considering filing for bankruptcy, please call Stone Rose Law at (480) 739-2448.
Why Does the Automatic Stay Exist?
The automatic stay protects you and your creditors. It protects individuals and businesses, but does not apply to non-debtors, like corporate officers, corporate affiliates, guarantors, or co-defendants in lawsuits.
How the Automatic Stay Protects You
When you reach a point where you are considering filing for bankruptcy protection, often your relations with your creditors have soured to the point where it is hard to live life normally.
- Creditors may contact you by telephone multiple times a week.
- Your mail will be full of letters demanding payment in full and threatening to take legal action against you if you do not.
- Some creditors will assign your account to a collection agency, which will aggressively go after you in pursuit of the debt.
- Other creditors will file lawsuits against you to collect debts, in an attempt to obtain a judgment lien against you or to garnish your wages.
- Some secured creditors will attempt to repossess loan collateral, like your car.
- If you own a home, the mortgage lender will attempt to foreclose on your house.
- If you are behind on your utility bills, like electricity or water, the utility companies may take action to disconnect your services.
- If you are renting, your landlord will try to evict you.
- If you owe federal taxes, the Internal Revenue Service (and the Arizona Department of Revenue if you owe state taxes) will be coming after you to pay them.
- If you have been overpaid for any public benefits, like unemployment or Medicare, these will be subject to collection efforts by the governmental unit that paid them.
As a general rule, the automatic stay stops all these activities, at least temporarily.
In effect, it allows you to breathe again and to stop dreading the sound of your phone ringing, not wanting to check your mail, or listening for the sound of a tow truck backing into your driveway or a process server knocking on your door.
The automatic stay is the beginning of your fresh start that bankruptcy provides. This benefit is a key reason why many debtors file for bankruptcy in the first place.
How the Automatic Stay Protects Your Creditors
The automatic stay also protects all your creditors by preventing some of them from getting ahead of others by obtaining legal judgments against you, or seizing your property, leaving the remaining creditors with little or nothing in the way of adequate protection for their interests.
Once the automatic stay is in place, the bankruptcy court can treat all your creditors equally, so they can each receive a proportional share of your limited assets that will be available to them.
How the Automatic Stay Works
The automatic stay becomes effective when you file your bankruptcy petition.
Once in place, the automatic stay protects you against certain actions from creditors. These include:
- Beginning or continuing court proceedings against you
- Attempting or continuing with foreclose on your property
- Creating, perfecting, or enforcing a lien against your property
- Attempting to repossess loan collateral
- Garnishing you wages
How Long Does the Automatic Stay Last?
The automatic stay provisions remain in effect as long as your bankruptcy proceeding continues. Once the bankruptcy judge either grants relief and discharges your debts or dismisses your case, the automatic stay ceases.
Factors that can influence how long the automatic stay is effective include:
- Whether the stay applies to you or to property in your possession.
- The type of bankruptcy you are filing under: Chapter 13 cases usually take three to five years to complete, compared to a few months for a Chapter 7, so the automatic stay provisions last longer in this case.
- Whether you have filed more than one bankruptcy case.
- If one bankruptcy is still pending when you file the new one, then the automatic stay for the second case lasts only for 30 days unless the bankruptcy court extends it.
- If you have had two bankruptcy cases pending during the previous year, no automatic stay will apply to the third case unless you file a motion with the bankruptcy court and the court grants it.
What Happens if a Creditor Violates the Automatic Stay?
If a creditor continues to contact you about a debt or attempts to take legal action against you based on the debt, then you can sue that creditor to seek money damages.
Note, however, that a creditor you did not include in your bankruptcy obligations when you filed your paperwork with the court will not have received notice of the automatic stay, and in this situation, it will be hard for you to claim it acted in violation of the stay. Contact your Attorney immediately if a creditor was missed.
Is the Automatic Stay Subject to Any Limitations?
Two situations can exist in which the automatic stay does not apply from the outset, or a creditor can attempt to have it removed.
Debts Not Subject to the Automatic Stay
Some kinds of debts are exempt from the automatic stay. These include the following:
- Child support and alimony payments. You can still be subject to wage garnishment and withholding of your federal tax refund if you owe child support or spousal support, although in some circumstances, if you have another asset that is part of your bankruptcy case, that particular asset might be protected from domestic support obligations by the automatic stay.
- Foreclosure actions. If your mortgage lender has already commenced a foreclosure action against you when you file for bankruptcy, then the mortgage lender could file for a motion for relief if there is no plan to cure the back mortgage payments and resume payments again. In most cases, this can be avoided with a Chapter 13 Plan.
- Eviction. Although the automatic stay ordinarily stops an eviction, your landlord can still file a motion for relief with the bankruptcy court to allow it to evict you, even though this will not entitle the landlord to any back rent you may owe.
- If the landlord alleges that you have been endangering the property or have been using controlled substances there, this can enable the landlord to proceed with the eviction regardless of the automatic stay.
- If your landlord already has a judgment against you to obtain possession when you file your petition, then in Arizona, the automatic stay will not affect the eviction proceedings, and your landlord can continue with the eviction.
- Collection of back tax liability. The automatic stay temporarily stops the IRS from issuing a tax lien, seizing your property, or garnishing your income through a United States Tax Court. But despite the presence of the automatic stay, the IRS can still withhold any federal tax refund you may be eligible for, audit you, hit you with a tax deficiency notice, demand a tax return from you, and issue a tax assessment on you.
- Payment of utility bills. The automatic stay will prevent a utility company from shutting off your service, but only for 20 days. The stay does not eliminate your obligation to pay the utility company, as it otherwise does with a creditor.
- Overpayment of government benefits. If you intentionally took more benefits than you were owed while on a government benefits program like unemployment or SNAP, then the government can seek to recover that money through wage garnishment. The automatic stay will temporarily halt this collection, but these kinds of debt usually cannot be discharged in bankruptcy. Once the stay is lifted, you will still be obligated to repay the overage amount.
- Criminal proceedings. If you have been convicted in a criminal action, and a financial penalty like a fine is part of the court order against you, then the automatic stay will preclude your obligation to pay the penalty amount.
- Pension loans. Your employer can continue to deduct pension loan payments through wage garnishment, including most job-related pensions and individual retirement accounts, like a 401(k).
- Bank administrative freezes. If you owe your bank money, then the bank can keep you from withdrawing any funds you have on deposit with the bank during the existence of the automatic stay. This depends on the bank and the type of agreement you have with them. Some banks cross-collateralize their loans with your bank account.
Creditor Petitions to Lift the Automatic Stay
In some appropriate circumstances, one or more of your creditors may seek relief from the stay by filing a petition with the bankruptcy court. These circumstances include:
- If the value of property or secured collateral may decrease during the bankruptcy case. For example, this sometimes happens with mortgaged real property.
- If you do not own property subject to the stay, it will not be included in the bankruptcy.
- If you are involved in a lawsuit in another court, sometimes the bankruptcy court will allow these to continue if they will resolve questions that must be addressed in the bankruptcy proceeding and it would be more practical to let another court handle them than to start over with them in the bankruptcy court.
The bankruptcy court considers creditor efforts to obtain relief from the automatic stay on a case-by-case basis. A creditor cannot attempt to lift the stay on behalf of all creditors.
Can You Benefit From a Bankruptcy Automatic Stay?
For you as an individual debtor, the automatic stay is one of the most important features of a Chapter 7 or Chapter 13 bankruptcy filing. It can give you peace of mind while your bankruptcy court proceeding continues and help you to get back on your feet again because when the automatic stay ends, so will many of your debts.
The automatic stay is not a cure-all for all the kinds of debts you may owe. And you can be sure that your creditors will be looking for any way they can to have it lifted for them by the court. Because of this, having an experienced Arizona bankruptcy attorney to represent you in a bankruptcy filing can help you to make the most of the automatic stay protections you are eligible for.
At Stone Rose Law, our bankruptcy attorneys can make sure your rights under the automatic stay are protected. If you are considering bankruptcy protection from creditors, call us at (480) 739-2448 to speak with an experienced bankruptcy lawyer and set up a free case evaluation.
