While the bankruptcy law provides many legal definitions of the dos and don’ts of an automatic stay, the laws are often not easy to understand. Here’s what the advantages of a stay are in layman’s terms – terms that debtors can clearly understand.
That “automatic stay” is a provision that stops any legal actions against you. This includes foreclosure actions, actions to get a judgment against you, actions to evict you, and actions to harass you into paying your debt. It can help you with utility shutoffs and can help protect your unemployment benefits and even your job.
Here are some of the practical benefits of the automatic stay:
It stops Foreclosure actions: Any actions of foreclosure (actions to force a sale of your home) must stop as soon as you file your petition. The stay isn’t a long-term remedy – but it will give you time to breathe and time to calmly review your financial affairs to see if there’s a real way to save your home. You may be able to rid yourself of the obligation to pay second and third mortgages if the first mortgage is worth more than the home. You may also be able to keep your house through a Chapter 13 bankruptcy plan. The key is the stay stops any foreclosure immediately and give you time for you and your lawyer to see what you can really manage.
It stops collection actions: If you hate to check your mail because another overdue payment option is in the mail or you hate to answer the phone because a collection agency is calling, then you should know that the automatic stay will stop those actions. All actions to collect the debt must cease immediately. Creditors have to file their claims with the bankruptcy court and then work with the trustee and the debtor’s bankruptcy lawyer. In many cases unsecured debt will be discharged completely (in a Chapter 7 bankruptcy) or will be significantly reduced (in a chapter 13 bankruptcy)
It may temporarily stop eviction actions: The new bankruptcy law does make it easier for your landlord to evict you even when you file a bankruptcy. This is especially true if the landlord already has a judgment for possession or if you are using a controlled substance or causing damage to the property. Still, the automatic stay can help in some cases stop the eviction for a short time until the landlord is able to get relief from the stay. Sometimes that short time may be all you need to catch up though – so the stay can be a big help for some renters.
Turning off your utilities: The automatic stay can stop the turn-off, for about 20 days, of the disconnection of utilities such as water, gas, electric or telephone service. Just the short 20 day period can be of help to some debtors – especially if it’s the middle of winter.
It can help stop wage garnishments. The automatic stay stops the garnishment of your wages so you can get your full salary. If the underlying debt is not secured, then the debt may be discharged completely and the garnishment stopped permanently. If the debt is secured, then the creditor is probably trying to repossess your collateral (such as your home or car) instead of garnishing your wages. The automatic stay is especially useful if there are multiple creditors trying to garnish your wages.
What the Creditors Will Do to Get Around the Stay
The automatic stay can be lifted by court order in some cases. The creditor will often try to lift the stay if the debt is secured by property such as a home or a car. If the creditor does have a legitimate security interest and the debt is in arrears, then the creditor will normally ask that the stay be lifted if the debtor filed a Chapter 7 bankruptcy. The debtor may counter that the property is protected by federal or state exemptions or that the debtor is willing to reaffirm the debt. In a chapter 13 bankruptcy, the creditor with a security interest will normally wait for the chapter 13 plan to be reviewed by the trustee.
The creditor may also assert that the automatic stay doesn’t apply in many situations. The stay doesn’t prevent the police from charging a debtor with a crime. It doesn’t stop tax audits or attempts to determine a tax liability. The stay doesn’t stop the debtor from having to pay alimony or child support. Your obligation to repay a loan from a pension may continue.
For most debtors, the stay provides temporary and immediate relief. Consult with your local bankruptcy lawyer to review all your financial affairs and to get immediate help in stopping collection and other creditor actions.