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Bankruptcy Code Gives a New Lease on life to Debtors During Automatic Stay

What is automatic stay? By St. Louis Bankruptcy Attorney Tobias Licker

The automatic stay can be touted as an authoritative weapon in the hands of a debtor or a company. When a debtor implements this fundamental debtor protection, the creditor can be penalized for its misuse. However there are a few exceptions to it. As soon as an automatic stay comes into action the debtor gets a sigh of relief from his/her creditors. This means all the harassment meted out from the creditor to a debtor in this period and all foreclosure actions are halted immediately for a certain period of time.

What Are The Benefits of an Automatic Stay?

There are several benefits associated with the automatic stay. With the automatic stay a debtor or company instantly comes into action and makes another attempt for repayment or can reorganize a plan to deal with the situation. Overall, during the automatic stay a debtor or the company in question temporarily gets a relief from all the financial pressures which were the cause of his/her bankruptcy.

For example, when the automatic stay is implemented, a creditor with a claim which evolved before bankruptcy cannot demand payment or initiate any lawsuit against the debtor. The creditor also cannot carry forward litigation activities or initiate or pursue non-judicial or judicial foreclosure against property.

Moreover, if a debtor is facing a utility disconnection, like extrication of gas, water, electric, or telephone service, during the automatic stay, s/he may get a relief for a certain period.

Likewise, the automatic stay helps in the foreclosure also. For example, if your home mortgage is being foreclosed, the proceedings for this will stop. Therefore, you get time to restructure yourself. Otherwise, a creditor will be able to proceed with the foreclosure.

The automatic stay also helps individuals during eviction. If you are facing eviction, you may get some relief for a brief period. However, do remember that new bankruptcy law has made it easier for landlords to carry on with evictions. For example, when your landlord asserts that the property in your possession is being jeopardized, the automatic stay will protect you for a few weeks, but landlords may appeal to carry on with the eviction.

When Will The Automatic Stay Not Help A Debtor?

The automatic stay cannot avert certain instances, such as particular tax proceedings. For example, the IRS will certainly audit a debtor and can demand a tax return, come out with a tax assessment, or demand payment with regard to an assessment. However, the IRS cannot confiscate a debtor’s property or income during this time.

The automatic stay will not help a debtor during criminal proceedings either, for example, if a debtor is convicted of writing a bad check, has been ordered to pay a fine, or has been sentenced to community service, the automatic stay will not provide assistance.

However, regardless whether there is an automatic stay, certain money can be withdrawn from the income of a debtor to repay a loan from certain types of pensions, including job-related pensions and IRAs.

Moreover, if a bankruptcy case has not been resolved and is pending, it may be automatically terminated after 30 days unless and until the trustee or a creditor asks for the stay to carry on and can substantiate that the ensuing case was filed in good faith.

What Will Happen if a Creditor Continues to Harass Even After The Automatic Stay?

After filing for bankruptcy, in a majority of cases, creditors immediately stop all contact with a debtor. However, despite the automatic stay, if a creditor continues to call or send letters or harass a debtor the creditor may be subject to sanctions. If a creditor contacts the debtor and scolds him for filing bankruptcy, an individual debtor may recover damages for these violations from the creditor.

Luckily, the Bankruptcy Code gives debtors a new lease on life against creditors who violate the rules.

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  • Will I Lose My Home or Car in Chapter 7?
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    What Happens to Joint Debt if Only One Spouse Files for Bankruptcy?
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