What is the Automatic Stay in a Bankruptcy Case?

You’ve heard it before. A bankruptcy case can help you end creditor harassment, stop foreclosures and prevent repossessions. How can a bankruptcy case have that much power?

A set of federal laws called the bankruptcy code governs how we conduct bankruptcy cases in the United States. It  controls where the cases are filed, defines the types of bankruptcy cases, dictates how debts can be managed with a bankruptcy case, what assets can be used to satisfy claims, and a lot of other issues concerning how we deal with our creditors and obtain relief when we need a fresh start.

One of the most important provisions of the bankruptcy code is a concept known as the automatic stay. The automatic stay is an injunction that prohibits certain creditors and other parties from starting or continuing most collection activities once a bankruptcy case has been filed. It establishes the bankruptcy court as entity with control over the your finances and assets, provides a breathing space for the debtor, and prevents creditors from controlling and liquidating assets to the detriment of other creditors.

The Automatic Stay Prohibits Collection Activity Outside the Bankruptcy Case

The automatic stay helps by prohibiting or regulating the types of collection activities a creditor can employ to collect its debt. These include:

• Making phone calls to collect a debt
• Sending letters demanding payment of a debt
• Filing a lawsuit or continuing a lawsuit to collect a debt
• Foreclosing on a mortgage
• Repossessing collateral like a car
• Any action to collect on a judgment that the creditor obtained before the bankruptcy case was filed
• Most actions to evict a debtor from leased property
• Filing or collecting on wage or bank account garnishments
• Discontinuing utility service like power, gas or water.

Limits on the Automatic Stay

The automatic stay is not absolute. In some cases, it is limited in duration. For instance, the automatic stay only applies to a utility service for a short period to give you an opportunity to negotiate a deposit to secure payment in the future. It can be modified or lifted for secured creditors if you fail to make payments on the secured debt. If you filed another bankruptcy case within the 12 months preceding your current case, the automatic stay is restricted.

The automatic stay does not apply to every action that a creditor can take. Certain actions by certain creditors are not prohibited. Some of these allowed actions are:

• Criminal proceedings. The automatic stay does not prevent your arrest or prosecution for violating of any laws.
• Marriage dissolution and child custody proceedings. The bankruptcy court has no interest in the dissolution of the marriage or custody of the children. But, all the debtor’s assets come under the jurisdiction and control of the bankruptcy court when a bankruptcy case is filed. Therefore, the bankruptcy court will normally expect to review and approve any decision by the state court on distribution of assets.   
• Tax audits, notices and demands. The IRS and other taxing authorities can commence and continue audits, issue notices of taxes due, demand tax returns be submitted, issue notices of assessments and demand for payment of assessments.
• Tax setoff. The automatic stay does not prevent a taxing authority from taking a tax refund to satisfy most tax claims that arose before the bankruptcy case was filed.  
• Loans from a pension. The automatic stay does not prevent a pension plan administrator or 401k administrator from continuing to withhold payments from the debtor’s pay.

In effect, the automatic stay levels the playing field so that individual creditors get no advantage over other similar creditors. In addition, the debtor does not have to be concerned with defending collection efforts on numerous fronts or protecting exempt assets.

When you feel set upon by creditors, the automatic stay is a powerful tool to give you the breathing space you need to consider your next moves.

The Law Offices of Melanie Tavare of Hayward and Oakland can help you determine if the a bankruptcy case and the automatic stay will help your bottom line. If you are being harassed by creditors or you are in imminent danger of losing assets, learn more about how The Law Offices of Melanie Tavare can help you get that breathing space and save that property. Call us at 510-255-4646 or contact us online.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.