Automatic Stay of Bankruptcy

understanding the automatic stay

One essential concept within bankruptcy law is the automatic stay, a crucial provision that offers immediate relief and protection to debtors facing financial distress.

The automatic stay is one of the biggest benefits to someone filing for bankruptcy. Once a bankruptcy is filed, the automatic stay goes into effect, halting all collection efforts, lawsuits, foreclosures, repossessions, evictions and creditor contact. The reprieve from creditor harassment provides debtors breathing space and a chance to reorganize and begin a new financial life without being subjected to aggressive collection efforts.

effects of the automatic stay of bankruptcy

Protection from Collection Activities. The automatic stay prevents creditors from pursuing legal actions to recover their debts. This includes phone calls, letters, lawsuits, wage garnishments, and even utility disconnections.

Preservation of Assets: The stay of bankruptcy safeguards a debtor’s assets from being liquidated by creditors while the bankruptcy process is underway. For example, it will stop the repossession of vehicles and the foreclosure of homes.

The Automatic Stay of Bankruptcy can also be described as an injunction that immediately stops lawsuits, foreclosure, garnishments, and most collection activity against the debtor the moment a bankruptcy petition is filed. This automatic stay is the equivalent to a restraining order that prevents creditors from taking certain collection actions against a debtor.

These collection actions include: repossessing vehicles, foreclosing on homes, telephoning you, sending you collection letters, filing lawsuits against you or continuing with lawsuits that are already in progress, repossession attempts, wage or bank garnishments, recording any liens or judgments, or anything else that attempts to collect a debt or improve a creditor’s position as it relates to you and your underlying debt.

penalties for violating the automatic stay

Creditors must and do respect the automatic stay, as any violations can lead to serious consequences. The bankruptcy court takes violations seriously to maintain the integrity of the process and ensure that debtors receive the full benefits of bankruptcy protection. The following is a list of potential penalties creditors may face if they violate the automatic stay.

Damages Against Creditors. Creditors who willfully violate the automatic stay can be liable for actual damages, which may include financial losses suffered by the debtor due to the violation.

Injunctions and Orders. The bankruptcy court can issue injunctions and orders to prevent further violations, including restraining orders against harassing collection actions.

The Automatic Stay is Not Absolute

The automatic stay is not absolute and creditors are given the right to file a Motion with the bankruptcy court requesting the stay to be “lifted”. By having the stay lifted creditors are free to pursue their collection activities.

For example, an auto finance company can file a Motion to Lift the Automatic Stay if a debtor is delinquent on their car your payments. In those cases, the creditor will be granted its relief and will be permitted to recover the collateral despite the bankruptcy. So if a debtor does not continue to make the car payment after the bankruptcy has been filed then you may have your vehicle repossessed.

Also, the automatic stay will only provide temporary relief if you are not making your mortgage payments. As far as general creditors and unsecured creditors, the automatic stay will continue until the case is discharged.

municipalities and money owed

Additionally, the automatic stay does not prevent Federal, State or local authorities from pursuing criminal action. Furthermore, lawsuits involving child support or spousal support (alimony) are not stayed and cannot be discharged in bankruptcy.

If you need help from an Arizona Bankruptcy Attorney then contact the Dunaway Law Group at 480-702-1608 or message us HERE.

The Dunaway Law Group provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice and does not create a lawyer-client or attorney-prospective client relationship. Readers should not act upon this information without seeking advice from professional advisers. This Firm limits its practice to the states of Arizona and New York.

When Tenant Files Bankruptcy

What Should You do if a Tenant Files Bankruptcy?

A landlord must immediately stop an eviction if a tenant files bankruptcy. If you receive a notice from the bankruptcy court that a tenant you are trying to evict has filed bankruptcy then stop the process! Bankruptcy law is very complicated, with severe penalties for any creditors seeking to take action against someone who has filed for bankruptcy. If a tenant files for bankruptcy before you have obtained the eviction judgment then you must stop with the eviction lawsuit.

As soon as a person files bankruptcy an “automatic stay of protection” goes into effect. The Automatic stay of bankruptcy is an injunction that stops; garnishments, lawsuits, foreclosure, repossession, evictions, etc. It is the equivalent of a restraining order that prevents creditors from taking collection actions.

The Automatic Stay is not Absolute

The automatic stay is not an absolute and landlords are given the right to file a Motion with the bankruptcy court requesting the bankruptcy to “lift” the automatic stay. Once the automatic stay has been “lifted”, the landlord may proceed with the eviction. It takes approximately 30 days for the bankruptcy court to grant permission to proceed with the eviction. If the tenant files an “objection” to the lift-stay motion then a hearing will be set in the bankruptcy court. If a hearing is required, then it may be 2 to 3 months before a hearing has been set and the request to lift the stay can be argued in front of a bankruptcy judge.

If you are an Arizona landlord whose tenant has filed for bankruptcy then contact the Dunaway Law Group at 480-702-1608 or message us HERE.

The Dunaway Law Group provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. The Firm limits its practice to the states of Arizona and New York.