Understanding the Automatic Stay in Bankruptcy Protection

When you initiate a bankruptcy proceeding, you activate a powerful shield known as the automatic stay. This legal bulwark halts most collection activities, lawsuits, and attempts to seize your property by creditors, collection agencies, or government bodies. It’s particularly helpful if you’re facing immediate threats such as eviction, foreclosure, contempt charges related to unpaid child support, or loss of essential services and employment due to wage garnishments.

The Reach of the Automatic Stay in Emergency Situations

The automatic stay is a critical tool for handling urgent financial crises:

• Utility Service Interruptions: Behind on utility payments? The automatic stay prevents disconnection of services like water, electricity, gas, or phone for at least 20 days, potentially longer. Additionally, bankruptcy may eliminate the debts owed for past utility service.
• Home Foreclosure: If you’re in the midst of home mortgage foreclosure, the stay will pause proceedings temporarily. It’s worth noting that for long-term home retention, filing Chapter 13 may offer better options than Chapter 7.
• Eviction: The automatic stay can temporarily ward off an eviction process. However, a landlord with a prior judgment of possession, or allegations of property endangerment or illegal substance use, won’t be hindered by the stay.
• Overpaid Public Benefits: Normally required overpayments recapture from future benefits is held off by the automatic stay.
• Wage Garnishments: Bankruptcy stops garnishments, letting you keep your full paycheck. This might also discharge the debt tied to the garnishment, but habitual garnishments can lead to employment issues since employers might dislike managing them.

Limitations of the Automatic Stay

Certain actions and proceedings are immune to the automatic stay:

• Tax Procedures: The IRS can still carry out audits, demand tax returns, issue deficiency notices, and make assessments. While the automatic stay halts tax liens or property and income seizures, the IRS’s basic assessment processes continue.
• Support-related Lawsuits: Actions to establish or adjust child support or alimony proceed uninhibited by a bankruptcy filing.
• Criminal Charges: Bankruptcy won’t affect the criminal aspects of a proceeding, such as the requirement to perform community service or pay fines.
• Pension Loan Repayments: The automatic stay doesn’t stop repayments of loans from most job-related pensions and IRAs.
• Repeat Filings: If you’ve recently had a bankruptcy case, the stay might end after 30 days unless shown to be in good faith, especially if previous cases had pending motions to lift the stay.

When Creditors Can Challenge the Automatic Stay

Creditors can request that the bankruptcy court “lift” the automatic stay, especially if it isn’t fulfilling its purpose. For instance, if your house is up for foreclosure sale and you lack equity or the ability to pay mortgage arrears, your creditor may successfully seek the court’s permission to proceed with the foreclosure.

At James H. Wilson, we are dedicated to guiding our clients through the complexities of bankruptcy protection. If you’re considering bankruptcy or seeking to understand more about the automatic stay, please contact us at 804.740.6464 for support and legal counsel.