Appreciating the Awesome “Automatic Stay”

The “automatic stay” gives protection for you and your assets that is awesomely fast. And very broad. Don’t take it for granted.

 

The last two blogs have dug into the relatively rare situations in which the “automatic stay” does not protect you or your assets. But it’s important to understand that those are unusual exceptions. Almost all the time, the moment your bankruptcy case is filed all creditors must immediately stop every possible kind of collections effort against you.

Awesomely Fast Protection

The automatic stay goes into effect simultaneous with the filing of your bankruptcy petition. The “petition” is the document “commencing a case under [the Bankruptcy Code].” Sections 101(42) and 301(a). So the very act of filing the petition itself “operates as a stay.” Section 362(a).

The instantaneous effect of the automatic stay is amazing especially in comparison to most other court procedures. Most take weeks, or even in the case of emergencies at least days or hours. Usually some kind of request or motion needs to be filed to get the court’s attention, the other side is given some opportunity to respond, and then there may be a hearing of some sort, before finally a judge makes a decision.

But the automatic stay skips all that. It is, at least at the beginning, completely one-sided, in your favor. You “win” an immediate court order, without the creditors having any immediate say about it, without involving a judge at all.

So the automatic stay gives you an immediate breathing spell, freezing all collection efforts against you, whether your creditors like it or not.  

Awesomely Broad Protection

This break from your creditors covers “any act to collect, assess, or recover” a debt—just about anything a creditor could do to.

Besides stopping all collection phone calls and bills, the automatic stay stops all court and administrative proceedings against you from starting, or from continuing. If your bankruptcy is filed right before a lawsuit is to be filed at court against you, the lawsuit can’t be filed. Same with a home foreclosure. A prior judgment against you can’t result in your paycheck or bank account being garnished. If you’re behind on your vehicle loan payments, the repo man can’t come looking for your vehicle. If you owe back income taxes to the IRS, it can’t record a tax lien against your home and vehicle.

The automatic stay is powerful stuff.

“Relief” from the Automatic Stay

Any creditor can ask the court to cancel the automatic stay so that the creditor can again take action against you, your assets, or the collateral in particular. The most common situation for this is a creditor asking for the right to take back the collateral securing the debt—to repossess a vehicle or to start or continue a home foreclosure. Whether or not the court will give it this right, or give “relief from stay” in any situation, depends on all the details of the case. It requires a careful analysis to be done by and discussed with your attorney.