Automatic Stay and Bankruptcy

When you file for bankruptcy, you expect prompt relief from creditor collection and, more importantly, a little breathing time so you can regroup and get your affairs in order. Your best bet for achieving some semblance of calm in the storm? An automatic stay in bankruptcy. Whether you file for chapter 7 or chapter 13, an automatic stay can temporarily halt everything, from wage garnishment to foreclosure proceedings.

What is an Automatic Stay in Bankruptcy?

An automatic stay goes into effect as soon as you file for bankruptcy. This injunction prevents creditors from attempting to collect on the debt you owe. Actions prevented through automatic stays include judicial proceedings on the creditor’s behalf, attempts to create or enforce liens against your property, and any other attempts to obtain your property.

How Can an Automatic Stay Make Your Life Easier?

An automatic stay in bankruptcy could have an instantaneous impact on several areas of your life. For example, if your lender has already initiated foreclosure proceedings, the stay may halt the effort, leaving you secure in the knowledge that you can remain in your home for the time being. Likewise, automatic stays often successfully stall evictions, granting you just enough time to find a new residence.

If you struggle to pay your utility bills, an automatic stay could prevent utility companies from turning off electric, gas, or water service for at least three weeks. Are you currently unable to take home your entire paycheck due to debt-related wage garnishment? An automatic stay may prevent garnishments, thereby ensuring your ability to take home the pay for which you work so hard.

How Long Does the Automatic Stay Last?

In the majority of bankruptcy cases, the automatic stay goes into effect as soon as the case is filed. The length of the stay depends on a variety of factors. These include the creditor’s ability to lift the stay and whether collection activity is directed at the debtor or property he or she owns. If collection activity is primarily targeted at the debtor, the stay generally lasts until a discharge occurs. If collection action is aimed at property, the debtor must file a Statement of Intention within 30 days. Without prompt filing, the stay will be lifted on day 31. If the Statement of Intention is filed on time, the stay may be lifted 30 to 45 days after the official meeting of creditors.

Can Creditors Override an Automatic Stay?

Unfortunately, an automatic stay offers no guarantee that you’re free of creditor harassment forever. Secured creditors are allowed to petition for relief if they demonstrate sufficient cause. If successful in this effort, creditors can continue to collect on your debt, despite bankruptcy proceedings being underway.

Motions for lifting automatic stays in bankruptcy are thankfully rare. The burden of proof lies on the petitioning creditor, who must convince the bankruptcy court that an excellent reason exists for lifting the stay. If the creditor files a motion, the debtor is entitled to a notice of the effort, as well as a hearing. The following are a few of the most common circumstances in which courts may choose to lift automatic stays:

Failure to Make Payments on Secured Debt

If the debtor fails to make necessary payments on secured debt, the creditor can claim reasonable cause for a lifted stay. After all, during bankruptcy, property used as collateral must either be paid for or returned to the creditor. A common example of this situation is when a homeowner has fallen behind on their mortgage prior to filing for chapter 7 bankruptcy. In such circumstances, the lender may request a lifted automatic stay so as to continue with the foreclosure process.

Motions from Unsecured Lenders

Courts often consider requests to lift automatic stays on behalf of unsecured lenders, assuming that debt is not included in the bankruptcy discharge. This is especially likely for those who file for chapter 7 bankruptcy but still owe child support or criminal restitution. Chapter 13 debtors can typically avoid lifted stays in such circumstances, as they are able to pay down unsecured debt within five years — and under the full protection of the court.

Depending on your situation and the type of bankruptcy you intend to file, an automatic stay could offer significant relief as you deal with the burden of debt. Your chances of obtaining a desirable outcome are far greater if you work with a trusted bankruptcy attorney. Your lawyer can guide you through the filing process and defend you against motions to lift automatic stays.

The seasoned attorneys at Bunch & Brock have served our community and the state of Kentucky for over three decades. We understand the struggle of getting out of debt, but also the relief that accompanies a fresh financial start. To learn more, contact us at 859-254-5522 or complete this online form.