One of the most disagreeable aspects of facing financial difficulty is the seemingly unending stream of phone calls and letters from bill collectors seeking payment on past due obligations. Filing a petition in bankruptcy court under either Chapter 7 or Chapter 13 can provide an almost miraculous relief from these collection efforts. The relief is called the “automatic stay.”
How the stay works
A judicial stay is a court order that prohibits all persons served with the stay from pursuing the conduct described in the stay order. In bankruptcy court, the clerk of the bankruptcy court where the petition is filed is ordered to automatically serve a stay order on all creditors identified in the bankruptcy petition. Penalties for violating the stay order can be severe, although creditors are allowed to seek relief from the stay by requesting a court order to that effect.
The automatic stay is intended to preserve the debtor’s assets from aggressive creditors and to ensure that the debtor’s assets are protected and available for all creditors.
The stay lasts until the earlier of the (1) case being closed of dismissed or (2) the order granting or denying the bankruptcy petition is issued by the court.
What does the stay do?
The stay applies to all individual creditors and protects all assets of the debtor from efforts to enforce liens, foreclose mortgages, and otherwise enforce security interests. The stay also prohibits creditors from contacting the debtor in an effort to collect a debt or enforce a lien.
What the stay does not do
Child support, alimony and state and federal taxes are not affected by the stay. The stay will not halt legal actions to determine child support or alimony.
The need for legal advice
The provisions of the U.S. Bankruptcy Code that authorize the stay are very complicated, and anyone seeking to understand the reach of the stay or its limitations may wish to seek the advice of a knowledgeable bankruptcy attorney before taking any action.