A significant turning point in the life of anyone financially overwhelmed is the decision to file for bankruptcy. It represents a way to turn a new leaf and achieve much-needed relief from crippling debts.

Beyond achieving fiscal stability, there are additional benefits to bankruptcy and the process involved. One such advantage is the automatic stay that is provided to the individual filing for bankruptcy.

However, you need to know what an automatic stay can and cannot do before making a decision to file for bankruptcy. If you are considering filing for bankruptcy, reach out to our Bay Area bankruptcy attorney at the Law Offices of Melanie Tavare to discuss whether or not an automatic stay can benefit you.

What is an Automatic Stay?

An automatic stay is a legal protection granted which can save you from aggressive creditors, assist in safeguarding important assets, and give you a chance to rebuild your life. Here we will delve into what an automatic stay can and cannot do for you once you file for bankruptcy.

What an Automatic Stay Can Do

There are certain things an automatic stay can do:

• Prevent Utility Shutoffs

An automatic stay can be a lifesaver when it comes to essential utilities such as electricity, water, and gas. When you file for bankruptcy, the automatic stay comes into effect, protecting you from disconnection for at least 20 days. This protection provides a temporary buffer period, especially for those struggling to keep up with utility bills. You may even be able to negotiate a new payment plan with your utility company during this period.

• Stop Foreclosures

Foreclosure is a homeowner’s nightmare – having a property auctioned off due to an inability to make mortgage payments. However, when filing for bankruptcy, the automatic stay is there to offer a temporary respite because the U.S. Bankruptcy Code under 11 U.S.C. §362 prevents creditors from taking your property after you file for bankruptcy.

It will halt the foreclosure process for the duration of the bankruptcy case, allowing you to catch your breath and work out a strategy for dealing with your property. Though an automatic stay may not prevent foreclosure permanently, it does provide valuable time to strategize on alternatives such as loan modification, a short sale, or refinancing.

• Stop Eviction

For those unable to make rent payments, the specter of eviction looms large. The automatic stay could provide welcome relief here as well. Once you file, it will temporarily halt any eviction proceedings against you. This suspension can buy you time to make arrangements for new housing or even to negotiate a new payment plan with your landlord. However, it is essential to be aware that if your landlord has already acquired an eviction judgment before you file for bankruptcy, the automatic stay will not prevent eviction.

• Stop Debt Collections

Undoubtedly, one of the most immediate and comprehensive benefits of an automatic stay is ceasing all collection activities by your creditors. Standards collection methods — such as phone calls, letters, or lawsuits — will be put on hold as soon as you file for bankruptcy. This reprieve from collectors allows you to focus on reorganizing your finances and moving forward without the constant nagging from creditors.

• Stop Wage Garnishments

Wage garnishments are court-ordered deductions from your salary to repay a debt. This can cause significant strain on an already stretched financial situation. Thankfully, the automatic stay can come to your rescue, stopping any wage garnishments the moment you file for bankruptcy. This provision can help you prioritize your finances and ensure that your necessities, such as rent or groceries, are taken care of first.

What an Automatic Stay Cannot Do

It is important for individuals considering the bankruptcy process to understand that the automatic stay has its limits.

• Certain Tax Actions

While the automatic stay does prevent several types of tax actions, such as garnishing your wages or bank accounts for unpaid taxes, there are some exceptions. For example, the stay does not prevent the government from conducting a tax audit, demanding to see your tax records, or issuing a tax deficiency notice. Additionally, if you owe back taxes, the I.R.S. can still enforce tax liens on your property during bankruptcy, as these liens are considered secured debts.

• Support Actions

Another area where the automatic stay does not provide complete protection is in the realm of support actions. If you have child support or alimony obligations, the automatic stay will not prevent the collection of these debts.

Additionally, the stay does not protect you from being sued for support enforcement, nor does it prevent the issuing of wage garnishments or withholding orders to collect these debts. It is crucial to understand that support debts are considered “priority debts,” and even after you complete bankruptcy, these obligations must still be paid in full.

• Pension Loan Repayments

If you have taken a loan from your retirement account, such as a 401(k) plan or an employee pension plan, the automatic stay will not prevent the repayment of these loans. Usually, these repayments are automatically deducted from your paycheck, and this will continue even after you file for bankruptcy. These loans are considered non-dischargeable debt, meaning that you will still need to pay off the loan after your bankruptcy case has concluded.

Seek Legal Guidance from a Bankruptcy Attorney

Dealing with crushing debt can be immensely challenging and can negatively affect various aspects of your life. The automatic stay provides a much-needed respite, allowing you to breathe and focus on rebuilding a healthier financial future. If you are considering filing for bankruptcy, reach out to the Law Offices of Melanie Tavare for legal guidance. Receive a free case evaluation by calling 510-255-4646.