The Automatic Stay and Relief from Creditors

It's important to understand that, once you file for bankruptcy, an automatic stay is put into place that prevents creditors from taking action against you or seizing your property during the proceedings. Regardless of whether you file for Chapter 11, Chapter 12, or Chapter 7, an automatic stay can provide crucial protection as you seek relief from unmanageable debt.

Specifically, the automatic stay in bankruptcy can help by stopping:

• Foreclosure — If your home is facing foreclosure, the automatic stay will halt the proceedings. However, whether you will ultimately be able to keep your home will depend upon the type of bankruptcy you file for. If you wish to retain your home, Chapter 13 might be a better option than filing for Chapter 7, unless your mortgage payments are current.
• Disconnection of Utilities — When you file for bankruptcy, the automatic stay will prevent utility companies from disconnecting your services for a period of time.
• Eviction — In some cases, an automatic stay may temporarily stop eviction proceedings for as long as the stay is in effect.
• Repayment of Public Benefit Overpayments — If your public benefits were overpaid, the automatic stay prevents the agency from collecting the overpayment.
• Wage Garnishments — Typically, after filing for bankruptcy, most wage garnishment stops, allowing you to take home your full salary without having portions of it taken.

Limitations of the Automatic Stay

There are, however, certain circumstances in which an automatic stay may not help. For example, while the stay will prevent the IRS from seizing your property or issuing a tax lien, you may still be audited by the IRS or sent a deficiency notice. In addition, bankruptcy does not stop required child support, alimony payments or criminal proceedings.

In some cases, a creditor may be able to request that the automatic stay be lifted. In order to do so, the creditor must submit a motion to the court explaining why the stay should no longer be in place. If the court grants the motion, the creditor can move forward with their collection efforts.

If you filed for bankruptcy and your case has been dismissed within the last year, the automatic stay will only remain in place for 30 days, absent obtaining Court approval for an extension. Additionally, an automatic stay is not permitted if you've filed for bankruptcy three times in a year.