The automatic stay in bankruptcy

 

The automatic stay is one of the most valuable functions of a bankruptcy proceeding for the debtor seeking relief from creditors.  The automatic stay immediately stops any lawsuit filed against you and virtually all actions against your property by a creditor, collection agency or government entity and provides an injunction against the continuance of any action by any creditor against the debtor or the debtor's property.

The automatic stay prohibits:

• Beginning or continuing law suits

• Collection calls

• Repossessions

• Foreclosure sales

• Wage garnishment or levies

The automatic stay remains in effect until:

• The debtor is granted a discharge

• The item of property is no longer property of the estate.

• A judge lifts the stay at the request of a creditor

Essentially, an automatic stay means that upon filing the petition for bankruptcy, all creditors, including the IRS, collection agents and attorneys, etc, are restrained from trying to collect their debts, repossess property, or foreclose.  Simply put, they cannot send you insulting or threatening collection letters, call you on the phone, sue, garnish your wages, repossess a car, foreclose on your home, or do any other act to collect on the debt.  Anyone who willfully violates the stay in the case of an individual  is liable for actual damages caused by the violation and sometimes for punitive damages.

The automatic stay under the new bankrutpcy law:

The new law limits the application of the stay or provides that it does not go into effect, in certain circumstances, where there are serial filings under circumstances that would indicate bad faith or abusive filings. 

The stay terminates after 30 days if there is a filing by an individual in Chapter 7, 11 or 13 within 1 year after the prior case (under any Chapter) was dismissed (except for a case refiled in another chapter after a dismissal of a Chapter 7 case based on the means test). A party in interest (including the debtor) may move to extend the stay and show that the filing is in good faith. 

A case is presumed to be in bad faith for this purpose if more than one case was pending in Chapters 7, 11 or 13 and at least one such case was dismissed for failure to file required documents without substantial excuse, to provide adequate protection, or to complete a plan, and there is no showing that the debtor’s financial situation has changed so as to allow a final discharge or completion of a plan. 

If two or more cases under any Chapter were dismissed during the prior year, the automatic stay does not go into effect at all until the court so orders after a hearing and a demonstration that the filing was made in good faith. 

The same bad faith factors noted above are also applicable to this determination. The law also provides that the stay will terminate if the debtor does not timely file (i.e., within 30 days after the petition date) its statement of intent with respect to property subject to a security interest and timely (i.e. within 30 days after the first date set for the §341 meeting) complies with the stated intention.

The court may extend the stay upon the motion of the trustee if the property is of the value to the estate and adequate protection is afforded to the creditor.