The Automatic Stay: How Filing for Bankruptcy Pauses Collection

What the Automatic Stay Does

When you file for bankruptcy under Chapter 7 or Chapter 13, an automatic stay generally goes into effect right away. This means it happens by operation of law and does not need a judge to issue an order. As long as this stay is in place, creditors generally may not start or continue certain actions against you or your property.

According to U.S. Courts, this can stop many types of collection actions. These include lawsuits, wage garnishments, and even phone calls from creditors demanding payments. The automatic stay also typically stops foreclosures. The bankruptcy clerk will send notice of your bankruptcy case to all creditors whose names and addresses you provide.

What the Automatic Stay Does Not Stop

While the automatic stay is powerful, it does not stop all actions. Under federal law (11 U.S.C. 362(b)), certain types of proceedings are not affected by filing for bankruptcy. These include:

• Starting or continuing a criminal action or proceeding against you.
• Civil actions to establish paternity.
• Civil actions to establish or change an order for domestic support obligations.
• Matters concerning child custody or visitation.
• Actions for the dissolution of a marriage, except for efforts to divide property that is part of the bankruptcy estate.
• Actions regarding domestic violence.
• Collecting a domestic support obligation from property that is not part of the bankruptcy estate.

Special Rules for Chapter 13 and Co-debtors

Filing a Chapter 13 bankruptcy petition also puts an automatic stay in place, stopping most collection actions against you or your property. U.S. Courts notes that Chapter 13 includes a special protection called the “co-debtor stay.” This generally prevents a creditor from trying to collect a consumer debt (one incurred by an individual primarily for a personal, family or household purpose) from someone else who is also responsible for that debt with you. This applies unless the bankruptcy court allows the creditor to proceed.

For foreclosures, the automatic stay can stop the process as soon as you file your Chapter 13 petition. This may give you time to catch up on past-due payments over a reasonable period. However, you could still lose your home if the mortgage company completes the foreclosure sale under state law before you file your petition. You could also lose it if you do not make the regular mortgage payments that become due after you file for Chapter 13.

Limits for Repeat Filers

There are special rules if you have filed for bankruptcy before. These rules can limit how long the automatic stay lasts or even prevent it from taking effect at all. These limits are found in federal law (11 U.S.C. 362©).

• One Prior Case Dismissed Within One Year: If you file a Chapter 7, 11, or 13 case, and you had another bankruptcy case dismissed within the previous 1-year period, the automatic stay might not last as long. In this situation, the stay for actions about a debt, property securing a debt, or a lease terminates with respect to the debtor on the 30th day after the later case is filed. You can ask the court to extend the stay. To do this, you must file a motion and have a hearing completed before that 30-day period expires. The court may extend the stay only if the party making the motion shows that the later case was filed in good faith as to the creditors to be stayed.
• Two or More Prior Cases Dismissed Within One Year: If you had two or more bankruptcy cases dismissed within the previous 1-year period, the stay does not go into effect when the later case is filed. If a party who has an interest in your case asks within 30 days after filing, the court may order the stay to take effect, but only if the party shows that the later case was filed in good faith.

U.S. Courts also notes that you generally cannot file for Chapter 7 or any other chapter if, in the 180 days before your current filing, a prior bankruptcy petition was dismissed due to your willful failure to appear in court or follow court orders. This 180-day rule also applies if you voluntarily dismissed your previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.

When the Stay Can Be Lifted

A party who has an interest in your case, such as a creditor, can ask the court to lift or change the automatic stay. This is done by filing a “motion to lift the automatic stay.” According to U.S. Courts, this is a request asking the court to allow the creditor to take action against you or your property that the stay would normally prevent.

Federal law (11 U.S.C. 362(d)) states that after a request, notice, and a hearing, the court shall grant relief from the stay under certain conditions. These conditions include:

• For cause: This might happen if the creditor’s interest in their property is not adequately protected.
• For actions against property: The court shall also grant relief if you do not have equity (ownership value) in the property, and the property is not necessary to an effective reorganization (in a Chapter 13 case, for example).

Practical Steps You Can Take

Navigating financial challenges and understanding legal processes can be complex. Here are some general steps that can be helpful:

• Keep careful records: Organize all your financial documents, including bills, debt statements, loan agreements, and any correspondence with creditors. This can help you understand your situation and provide information if you seek legal advice.
• Understand your debts: Make a list of all your debts, who you owe money to, and how much you owe. Note if any debts are secured by property, like a car loan or mortgage.
• Educate yourself: Learn about your rights and responsibilities. Websites like YourLawyerGuide and U.S. Courts provide general information to help you understand legal processes.
• Note deadlines: If you are involved in any legal proceedings or have received notices from creditors, pay close attention to any dates or deadlines mentioned.

When to get legal help

Filing for bankruptcy has significant financial and legal consequences. U.S. Courts strongly recommends seeking the advice of a qualified attorney. A lawyer can help you understand whether bankruptcy is the right choice for you, which chapter might be best, and whether your debts can be discharged (removed). They can also explain if you can keep your home, car, or other property, and any tax consequences of filing. Court employees and bankruptcy judges cannot offer you legal advice.

If you are unable to afford an attorney, you may qualify for free legal services. You can contact a licensed attorney in your state, a local legal aid office, or your state bar association for guidance. They can provide advice specific to your situation, which this general information cannot.

If you consider using a debt relief agency, federal law (11 U.S.C. 528) requires them to provide you with a written contract no later than 5 business days after they first provide bankruptcy assistance services to you, and before your petition is filed. This contract must clearly explain the services they will provide, the fees, and the payment terms. They must also give you a copy of the signed contract. Their advertisements must also clearly state: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” or a similar statement.