How an Automatic Stay Works in Bankruptcy

What Debts Can a Chapter 7 Bankruptcy Erase?
August 15, 2019

One of the most compelling reasons to file for bankruptcy is to initiate an automatic stay that provides potent legal protection against collection agencies and creditors. While not permanent, an automatic stay will prevent eviction and foreclosure, stop essential utility services for being disconnected, and at least delay, if not stop, most wage garnishments.

An automatic stay is a court order and comes into immediate effect when you file for bankruptcy. Most creditors are prohibited from calling, sending letters, emails, and text messages, and repossessing your property.

How an Automatic Stay Helps You

You’re in danger of losing your home or being evicted. Service providers are threatening to shut off the gas, electricity, water, and telephone service. Creditors are suing you for non-payment of debts and have, or aim to, apply for wage garnishments, forcing your employer to pay them a portion of your salary or wages.

  • Times are tough, and you’re behind on utility payments. But if you don’t have essential utilities, how will you survive? It’s not going to be a permanent solution, but the automatic stay will prevent services from being disconnected for at least 20 days.
  • You’re behind on your mortgage and need a realistic way to try and catch up with missed payments. An automatic stay will stop foreclosure proceedings and can provide the possibility of a permanent solution if you have filed a Chapter 13 bankruptcy. A Chapter 7 bankruptcy will wipe out most of your debts but isn’t a viable option for property owners because there’s no mechanism for catching up on back payments and keeping your property.
  • Provided your landlord hasn’t already got an eviction judgment against you for non-payment of rent, an automatic stay will buy you some time, but it’s only a temporary solution. As with foreclosure, there is a chance that the landlord will accept a repayment plan. However, you will have to repay what you already owe in addition to current rental.
  • Those who are deeply in debt often find they are faced with multiple wage garnishments from creditors. An automatic stay stops most wage garnishments as well as other debts that qualify, like personal loans and outstanding amounts from credit cards. A reality call, though, is that wage garnishments are often used for back taxes as well as outstanding alimony and child support payments. An automatic stay might enable you to pay off these debts, but no form of bankruptcy will discharge these debts.

Can Creditors File to Lift the Automatic Stay?

Creditors want their money and if there is a good chance that they can persuade the bankruptcy court to lift the stay, they will. This is most common in the case of disputes between landlords and tenants and in foreclosures.

Litigation is complicated, and before trying to defend a motion to lift an automatic stay, consult an attorney to see whether it’s worth pursuing. For instance, even if you have fallen behind on mortgage payments, there might be sufficient equity in the property to provide an argument for you to keep the house. If the court believes the creditor isn’t likely to lose money long-term, it might deny the motion to lift the stay.

If your finances are in a mess and you can’t see how you’re ever going to get out of overwhelming debt, Kakol Bankruptcy can help you by advising which form of bankruptcy will be best in your situation. Whether we suggest a Chapter 7 or Chapter 13, you’ll get that all-important automatic stay that will give you some respite.

Don’t wait for things to get worse, schedule an appointment or give us a call today.

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