This is guest article by Attorney Adam Schachter, a bankruptcy attorney in Houston Texas.
What is an Automatic Stay
As soon as a bankruptcy is filed, with a couple of narrow exceptions, something called the “automatic stay” goes into effect. The automatic stay is found in the bankruptcy code at 11 U.S.C. § 362(a) and it stops most collection efforts. Once a bankruptcy is filed, the automatic stay prevents repossessions and foreclosures and stops lawsuits. It ends the harassing phone calls and letters and provides an immediate sense of peace.
The automatic stay is one of the greatest benefits of filing bankruptcy. Its purpose is to give the debtor in bankruptcy a break from the seemingly endless efforts of collectors. This break is to give the debtor an opportunity to regroup and get the best chance at a fresh start.
Once a creditor has notice of the automatic stay it MUST abide by it. It is not allowed to continue calling or sending bills. It cannot take property from you. If a creditor is found to be in violation of the automatic stay by the court, you may be entitled to damages as well as payment of your legal fees. What is key is that you are able to prove that the creditor violating the stay had notice. Hence it is very important to make sure that the creditor addresses used in your bankruptcy filing are correct. Be sure to work closely with your lawyer to get it right.
Automatic Stay is not always Automatic
11 U.S.C. § 362(a) of the bankruptcy provides an automatic stay against all sorts of collection activity.
Note that the automatic stay is not always automatic. If you filed a bankruptcy that was dismissed by the court in the 12 months prior to filing another bankruptcy, the automatic stay is good for only 30 days. A motion must be filed to extend the stay past 30 days and you must be able to show that the circumstances that caused the dismissal of the previous case has changed such that this case will be successful. If you had 2 or more bankruptcies dismissed in the twelve months prior to filing another bankruptcy, there is no automatic stay. You must file a motion to have one imposed and also show that the circumstances of the prior cases have changed such that the present case should be successful.
If you find yourself in this situation we believe you need to brutally honest with yourself regarding whether bankruptcy is right for you and whether your case can be successful.
Exceptions to the Automatic Stay
11 U.S.C. § 362(a) of the bankruptcy code provides an automatic stay against all sorts of collection activity. What a lot of people (including many attorneys) don’t know is that there are 27 exceptions to the automatic stay found in 11 U.S.C. § 362(b). Now before you jump to conclusions in think the automatic stay is not as great as we’ve mentioned, understand that most of the exceptions make good sense and 16 of them almost never apply to every day people.
The common exceptions that affect every day people are:
The automatic stay does not stop criminal proceedings
It does not stop most family court proceedings
It does not stop the assessment of taxes or audits
It does not stop the payroll deduction of repayment of a 401k or similar loan
It does not stop an eviction if the order of eviction has already been signed
One important note that many people are not aware of is 11 U.S.C. § 362(b)(11): the automatic stay does not prevent the presentment of a negotiable instrument. “Negotiable instrument” is lawyertalk for “cashing a check.” This could be a big deal, especially if you have payday loans or other loans where collectors have asked you to give them a signed check. If you are in this situation, it’s best to simply close that particular bank account prior to the bankruptcy filing.