The bankruptcy automatic stay is one of the first protections offered to those who file for bankruptcy. The automatic stay takes effect as soon as the initial paperwork in a bankruptcy case has been filed. It is automatic which means that no other documents have to filed or orders obtained.   The notice of the bankruptcy filing is all that needs to be provided to creditors. Under bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed. The stay gives you a chance to get a discharge in a chapter 7 case or to get a plan confirmed in a chapter 13 case. The purpose of the automatic stay is to allow people to reorganize their debts and get a discharge.

What Does the Automatic Stay Stop?

Generally speaking, the automatic stay stops foreclosures, repossessions, lawsuits, wage garnishments, and tax levies. It does not stop criminal proceedings or legal actions against you for support (such as child support). It applies in all chapters of bankruptcy; Chapter 7, Chapter 11, and Chapter 13. If your car was repossessed the car company has to return the car.  If your bank account was levied, the amounts taken will likely be turned over if the bankruptcy is timely filed. In foreclosure situations, the foreclosure sale will be taken off calendar. For tax levies, the taxing authority will suspend the levy. The effect of the stay is immediate. The bankruptcy can be filed hours before a foreclosure sale or hours before a trial. Notice just has to be given to the opposing party.

The stay is in existence until the debtor gets a discharge or the case is closed.

The bankruptcy code however, provides a mechanism for relief for a secured creditor who is not receiving payments on their collateral. For instance, if you are a homeowner and you intend to keep your residence you have to continue making your mortgage payments. If you do not, the mortgage company will have grounds to ask the court to grant “relief from stay” to allow them to foreclose on their collateral. That means that if the court grants relief from say, the mortgage company could start or continue the foreclosure process. In many instances, a good bankruptcy attorney like David A. Arietta, can negotiate a settlement whereby the debtor starts making their mortgage payments again and pays an additional monthly payment to catch up on the post-petition arrears. In other instances secured creditors will seek relief from stay to repossess vehicles, especially in the situations where the debtor decided to surrender the vehicle. The vehicle may have been not worth keeping and the car value was less than the outstanding loan balance. Each situation is unique.  For a personalized review of your situation, call David A. Arietta at (925) 472-8000.