Filing for bankruptcy can provide a number of major benefits to someone in a difficult financial situation. For people who are suffering from bothersome debt collection calls or a looming foreclosure action, one of the most appreciated of these benefits is the Automatic Stay.
The Benefits and When They Apply
The Automatic Stay serves a kind of shield against most collection efforts. It goes into effect immediately upon the filing of the voluntary petition and the other documents that are necessary to initiate a bankruptcy case. Filing these documents with the Bankruptcy Court results in them being stamped with the date and time of filing, meaning that the Automatic Stay goes into place at that exact moment. All of the filer’s creditors are subject to the Automatic Stay at that point, regardless of whether they received notice of the filing. If anything that is barred by the Automatic Stay happens even a minute after the filing, it will be either void or voidable.
The practical impact of the Automatic Stay is that most creditors’ efforts against the filer are put on hold without a hearing or even notice from the court. The Automatic Stay will block collection attempts (including phone calls), certain judicial proceedings, and actions to create, perfect, or enforce a lien against the filer’s property. This can be critical in the event of a foreclosure or sheriff sale. Filing for bankruptcy will place these events on hold, which can give the filer additional time to find an alternate place of residence or to attempt to save the property. In the case of an eviction from a lease, the Automatic Stay applies unless the landlord already has a Judgment for Possession.
One of the most important aspects of the Automatic Stay is the relief that it provides. Desperate financial situations involve stress that can seem to be coming from every angle. After the Automatic Stay goes into effect, filers can answer their phones without worrying who is calling, utility companies will be forced to continue service, and eviction or foreclosure proceeding slow down enough so that the filer can take time to focus on transiting or preserving their residence.
The Automatic Stay has a dramatic effect on the people who file bankruptcy and their creditors. However, it does not apply in every situation or to every debt. For those who have filed multiple bankruptcies in the past year, the Automatic Stay will be reduced to a shorter period or may not apply at all. The Automatic Stay also does not apply to certain Family Court matters, certain tax proceedings, or to the great majority of criminal proceedings. Whether the stay applies in one particular set of circumstances is a question that should be asked of an experienced bankruptcy attorney.
Another limitation of the Automatic Stay is that it is not absolute. Under certain circumstances, a creditor can petition the court for relief from the stay. If the creditor succeeds, they will be free to collect on the debt they are owed just as if the bankruptcy filing never happened. Whether or not a potential filer should be concerned about a creditor seeking relief from the stay is, again, a question for an experienced bankruptcy attorney.
The Automatic Stay creates the potential for immediate relief from the majority of creditor actions. While there are exceptions that may apply, the Automatic Stay generally provides, at a minimum, some time for the filer to get organized or to attempt to resolve the issue. Its immediate nature means that last minute bankruptcy filings can be an effective option in some of the most desperate situations. Receiving and especially preserving the Automatic Stay can be difficult, especially under certain circumstances, so engaging the right bankruptcy attorney is always advisable.