Filing for bankruptcy can provide a number of major benefits
to someone in a difficult financial situation. For people who are suffering
from bothersome debt collection calls or a looming foreclosure action, one of
the most appreciated of these benefits is the Automatic Stay.
The Benefits and When
They Apply
The Automatic Stay serves a kind of shield against most
collection efforts. It goes into effect immediately upon the filing of the
voluntary petition and the other documents that are necessary to initiate a
bankruptcy case. Filing these documents with the Bankruptcy Court results in them
being stamped with the date and time of filing, meaning that the Automatic Stay
goes into place at that exact moment. All of the filer’s creditors are subject
to the Automatic Stay at that point, regardless of whether they received notice
of the filing. If anything that is barred by the Automatic Stay happens even a
minute after the filing, it will be either void or voidable.
The practical impact of the Automatic Stay is that most
creditors’ efforts against the filer are put on hold without a hearing or even
notice from the court. The Automatic Stay will block collection attempts
(including phone calls), certain judicial proceedings, and actions to create,
perfect, or enforce a lien against the filer’s property. This can be critical
in the event of a foreclosure or sheriff sale. Filing for bankruptcy will place
these events on hold, which can give the filer additional time to find an
alternate place of residence or to attempt to save the property. In the case of
an eviction from a lease, the Automatic Stay applies unless the landlord
already has a Judgment for Possession.
One of the most important aspects of the Automatic Stay is
the relief that it provides. Desperate financial situations involve stress that
can seem to be coming from every angle. After the Automatic Stay goes into
effect, filers can answer their phones without worrying who is calling, utility
companies will be forced to continue service, and eviction or foreclosure
proceeding slow down enough so that the filer can take time to focus on
transiting or preserving their residence.
The Limitations
The Automatic Stay has a dramatic effect on the people who
file bankruptcy and their creditors. However, it does not apply in every
situation or to every debt. For those who have filed multiple bankruptcies in
the past year, the Automatic Stay will be reduced to a shorter period or may
not apply at all. The Automatic Stay also does not apply to certain Family
Court matters, certain tax proceedings, or to the great majority of criminal
proceedings. Whether the stay applies in one particular set of circumstances is
a question that should be asked of an experienced bankruptcy attorney.
Another limitation of the Automatic Stay is that it is not
absolute. Under certain circumstances, a creditor can petition the court for
relief from the stay. If the creditor succeeds, they will be free to collect on
the debt they are owed just as if the bankruptcy filing never happened. Whether
or not a potential filer should be concerned about a creditor seeking relief
from the stay is, again, a question for an experienced bankruptcy attorney.
In Conclusion
The Automatic Stay creates the potential for immediate
relief from the majority of creditor actions. While there are exceptions that
may apply, the Automatic Stay generally provides, at a minimum, some time for
the filer to get organized or to attempt to resolve the issue. Its immediate
nature means that last minute bankruptcy filings can be an effective option in
some of the most desperate situations. Receiving and especially preserving the
Automatic Stay can be difficult, especially under certain circumstances, so
engaging the right bankruptcy attorney is always advisable.
