Automatic Stay
Automatic stay summary:
If you file bankruptcy, one of the legal protections you get is an automatic stay.
With an automatic stay, creditors aren’t allowed to start or continue debt collection actions against you.
An automatic stay applies to all chapters of the bankruptcy code.
Automatic stay definition and meaning
An automatic stay is a legal protection given to people who file for bankruptcy. When someone files a bankruptcy petition, the automatic stay immediately takes effect. It’s a court order that says creditors can’t start or continue debt collection actions on your accounts.
While the automatic stay remains in place, creditors can’t contact you, bring a debt lawsuit against you, or attempt to garnish your wages and bank accounts. Creditors can file a motion to lift the automatic stay, but the bankruptcy court gets to decide whether to do so.
More about automatic stay
An automatic stay is a court-ordered injunction that prevents creditors from attempting to collect a debt when you file for bankruptcy. The purpose of the automatic stay is to provide relief from debt collection efforts while you navigate the bankruptcy process.
Key features of the automatic stay
The automatic stay is a legal protection given when someone files for bankruptcy.
The court stops the automatic stay and can also take it away if a creditor asks to get the stay removed.
Here are some of the most important facts to know about automatic stays:
Protection is immediate, and the stay takes effect when you file your bankruptcy petition.
The automatic stay applies to all chapters of the bankruptcy code, including Chapter 7, Chapter 11, and Chapter 13 cases.
An automatic stay typically remains in place until your bankruptcy case is dismissed or discharged. Dismissal means your case ended without any debt relief. This could happen if you don’t complete all the requirements, or if the court thinks your case is fraudulent. Discharge means success—you're legally released from your responsibility for the debts included in your petition.
While the stay is in place, creditors can't contact you about debts you owe. They also can't try to collect other debts (like a debt lawsuit).
Creditors can ask for the court to lift (cancel) the stay, but they must be able to show a valid cause or reason why the court should do so.
The automatic stay covers debts you had before you filed for bankruptcy. The stay doesn’t protect any debts you take on after the initial filing.
What does the automatic stay prevent?
An automatic stay can halt a range of collection actions for debts included in your petition. That extends to:
Collection calls or notices
Wage garnishments or bank account levies
Liens against your property
Foreclosure proceedings
Vehicle repossessions
Utility shut-offs
Evictions, in certain circumstances
Now, there are some limitations. For example, an automatic stay won't stop the IRS from attempting to collect back tax debts. You could still be audited or have a lien placed against your property if you owe money to the government.
Bankruptcy and the automatic stay won't let you off the hook for domestic support obligations either. If you're late on child support or alimony payments, bankruptcy won't get rid of them. Your wages could still be taken from you to pay those debts.
What happens if a creditor violates the automatic stay?
An automatic stay is meant to block creditors from contacting you or trying to collect unpaid debts. If a creditor keeps calling or writing to you to pay, or tries to take you to court to get you to pay, you have some rights.
You can inform the bankruptcy court of the creditor's actions. The court can then take steps to force the creditor to adhere to the automatic stay. That can include imposing fines or other penalties.
Automatic Stay FAQs
Do I need a lawyer to file for bankruptcy?
You don't need a lawyer to file bankruptcy, but you might want to hire one if you're unsure how the process works or simply want an expert on your side.
If you'd like to file on your own you could download the forms you need at the U.S. Courts website, and find which bankruptcy court to send them to. This may be a good option if you qualify for Chapter 7 and all of your assets are exempt. For instance, you may have a straightforward case if you don't own a home and all of your debt is on credit cards.
However, bankruptcy can be complex, and people who represent themselves are far less successful on average than people who hire a bankruptcy attorney. The court staff is not allowed to help or advise you either.
The U.S. Bankruptcy Court published a report in 2020 (that's the most recent one available) showing that only 55.6% of self-represented filers successfully had their debt forgiven (discharged), compared to 94.1% of filers who had an attorney. In courts where electronic self-help was available, the success rate was 84.2%.
If you make an error, it could be very costly. You could fail to get the relief you're entitled to or lose an asset that you could have kept. It's normal to say, “If I could afford to hire an attorney, I wouldn't need to file bankruptcy,” but this is a situation where finding a way could have long-term benefits.
What's the most common reason people file for bankruptcy?
In a broad sense, the most common reason people file for bankruptcy is because they have debt they can no longer manage. The source of the debt is different for different people.
For some, the issue is medical debt. You get hurt or sick and can't work, the bills pile up, and without any income, you can't pay your obligations. Bankruptcy can offer a way out in that scenario.
For others, a major life event may be the culprit. Divorce, the death of a spouse, the loss of a business you've spent a lifetime building—all of those scenarios could lead to financial fallout that's best remedied with a bankruptcy filing.
How can I get rid of debt without filing for bankruptcy?
There are several ways to get rid of debt without filing for bankruptcy. You can use a debt consolidation loan to streamline payments, work with a credit counselor to pay off your debts in full without a consolidation loan, or negotiate with your creditors to accept less than you owe. A debt consultant can help you weigh all the options to find the right one.
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