by Adam Mack, J.D.
One of the most common stressors for people who are financially overwhelmed is the constant harassment they’re under from their creditors. Federal laws (such as the Fair Debt Collection Practices Act) grant a debtor some basic protections, but as long as a debtor owes them money, creditors will keep calling, dragging debtors to court, and repossessing property. However, there is a legal mechanism within the bankruptcy code that makes the harassment stop – immediately! That mechanism is called the Automatic Stay.[1]
What is it?
Like a “stay of execution,” the “stay” in Automatic Stay is a legal term of art meaning “stop.” The Automatic Stay is a legal mechanism similar to a court order from a judge that requires almost all creditors to immediately stop trying to collect. Because it’s built into the federal bankruptcy code, a debtor doesn’t need to go to a judge to get one. When a debtor files bankruptcy, the stay is automatically put into effect. Period.
For example, in one case a debtor was visiting his attorney to file bankruptcy and while he was in her office, a collection agent tried to repossess his car. When the attorney showed the collection agent the bankruptcy petition, he had to stop immediately and leave the car alone. This is an extreme example (and the debtor was very fortunate that he was ready to file bankruptcy), but it illustrates just how powerful the Automatic Stay is.
Depending on the debtor’s circumstances, a creditor can appeal to a judge and request that the Automatic Stay be lifted in regards to that single debt, so it is possible that a debtor who files bankruptcy will have to deal with that creditor again. However, any relief from an Automatic Stay occurs on a case-by-case basis, and if you have a good attorney helping you through the bankruptcy process, the creditor will have to call him or her instead of you personally.
How will it help me?
The Automatic Stay kicks in the minute a debtor’s bankruptcy petition is received by the court, and it orders the creditor to leave the debtor alone. The Automatic Stay makes it so that the moment creditors know a debtor has filed bankruptcy, they must
STOP attempting to collect a debt incurred prior to filing bankruptcy (this also means they have to stop making harassing phone calls), STOP initiating or continuing lawsuits or other court actions against the debtor, STOP attempting to enforce a judgment against the debtor already awarded by the courts, STOP attempting to repossess a debtor’s property, STOP attempting to enforce a lien against a debtor’s property, STOP implementing a setoff of any debts incurred prior to filing bankruptcy, and even STOP tax court proceedings.
If creditors are doing any of those things to you, a bankruptcy will make them stop the moment they know you’ve filed the petition.
There are some things an Automatic Stay will not stop, such as
criminal actions or proceedings, legal action regarding domestic violence, legal action seeking to establish paternity, legal action concerning child custody or visitation, legal action seeking to establish or modify domestic support obligations, collection of domestic support obligations, divorce cases, many administrative actions (such as suspending driver’s licenses or professional licenses, etc.), and some other actions initiated under the Social Security Act (these are uncommon).
Those court and collection proceedings fall under other categories of law and must be dealt with in their respective courts (criminal cases before a criminal judge, etc.).
In conclusion, bankruptcy offers many forms of relief to people who are overwhelmed with debt, but one of the most powerful of these is the Automatic Stay. As soon as the bankruptcy petition is filed, debtors are protected from the harassment of their creditors. The purpose of bankruptcy is two-fold: to give debtors a fresh start and to make sure creditors get their fair share. Most creditors have attorneys making sure they get everything they can; a debtor deserves a qualified attorney who can make sure his or her rights – like the Automatic Stay – are protected and enforced.
[1] 11 USC § 362
Disclaimer
These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!
