What is the Automatic Stay?

What is the Automatic Stay?

The Automatic Stay is an injunction that goes into effect when a bankruptcy case is filed.  An injunction is a court order that tells people to do something or not do something.  The Automatic Stay is issued when a case is filed.  The bankruptcy clerk prepares the order and sees that it is mailed out to all the creditors listed in the case.  The order imposing the stay is also known as the order for relief.  

It comes out on Official Form 309.  If you look at the form it says it is a notice of a bankruptcy case being filed.  It says the following:

“The filing of the case imposed an automatic stay against most collection activities.  This means that creditors generally may not take action to collect debts from the debtors and the debtors’ property.  For example, while the stay is in effect, creditors cannot sue, garnish wages, assert a deficiency, repossess property, or otherwise try to collect from the debtors.  Creditors cannot demand repayment from debtors by mail, phone, or otherwise.  Creditors who violate the stay can be required to pay actual damages and attorney’s fees.”  

The Automatic Stay provides the wall of protection that stops creditors from proceeding against you.  There are some actions that continue even if the Automatic Stay is in place and your attorney can go over them with you, but they include:  criminal case or actions, payments on pension loans from your paycheck, and child support or spousal support actions.  In some cases if you have multiple bankruptcy filings in the last 12 months there may not be an Automatic Stay issued or it may lapse if you do not take appropriate action after filing the case.

The protection of the Automatic Stay is a blanket that covers not only you but also your property.  It prevents creditors from seizing or exercising control over your personal property or real estate.  It stops lawsuits, collections, garnishments, harassment, pending repossessions and any other attempt to collect on debts.  In most cases it even allows you to recover a vehicle that was repossessed before filing but has not yet been sold at auction.  It also stops foreclosure sales.

If creditors violate the Automatic Stay they can be sanctioned by the court.  Bankruptcy attorneys will file motions to enforce the stay or have the creditor appear in front of the court to show why they should not be held sanctioned or held in contempt for their actions.  The courts take these motions seriously and want to protect the integrity of the system and make sure the orders they issue are obeyed.  This is not just about the rights of individual people that have filed a case but also about the policy behind the bankruptcy system.  

The Automatic Stay must be lifted if you want to proceed with certain actions.  In a divorce proceeding the state court divorce judge will want to issue orders that divide your property and debts which are also part of the bankruptcy case and covered by the Automatic Stay.  In order to issue those orders the bankruptcy judge will need to issue an order lifting the Automatic Stay.  

If you have a prior active bankruptcy case in the year before the filing of the current bankruptcy case then you will most likely need to have a hearing to make sure the court extends your Automatic Stay for the length of your bankruptcy case.  In most cases the Automatic Stay lasts until the Discharge is issued in the case.  This means in a Chapter 7 case it is lifted within 5 or 6 months but in a Chapter 13 case it might be in effect for 3 to 5 years.  

If you need relief from your creditors then you might need the power and protection of the Automatic Stay.  Please contact our office and one of our bankruptcy attorneys can help you determine if a bankruptcy would be the right choice for you.  We have offices in Wichita, Topeka, Lawrence, and Overland Park and we serve all of Kansas.