As soon as you file for bankruptcy, regardless of what chapter that you file under, the automatic stay goes into effect, which prevents your creditors from taking any further action against you or your property except in a few limited circumstances. The stay is automatic because neither you nor the courts do anything specific to enact the stay—it comes into existence by operation of law by your filing of your bankruptcy petition. Although a notice is sent to each of your creditors listed in the bankruptcy petition, the stay is effective even against creditors who do not receive formal notice. However, if a creditor does contact you, then you should inform them of the bankruptcy, which gives them notice of the automatic stay.
The purpose of the automatic stay is to allow only the bankruptcy court to decide on your financial matters, with the intent of giving you a fresh start and so that your creditors can be treated equally. It allows the bankruptcy court to take total control of all actions to collect money from you so that the resolution of your debts can be coordinated. To accomplish these goals, the automatic stay has the following properties:
- The filing of any form of bankruptcy effects the automatic stay.
- The stay remains in effect until either you receive a discharge or your case is dismissed or the court grants relief from the automatic stay for those creditors who successfully petition the court for such relief.
- The stay is binding on all creditors, including individuals, businesses, and government agencies, but the following exceptions can continue:
- the enforcement of domestic support obligations,
- tax proceedings, but the stay does prevent any tax authorities from collecting any taxes, and
- criminal proceedings, but all enforcements of money judgments are stayed.
In a Chapter 7 filing, the stay protects both the debtor's estate, with which he obtains a fresh start, and the bankruptcy estate from which the trustee will take or sell property to pay unsecured creditors. In a Chapter 11, 12, or 13 bankruptcy, the stay gives the debtor time to repay her debts according to a plan or schedule, which wouldn't be possible without the stay.
Note, however, that you do not need the automatic stay to prevent creditors from harassing you. Telling them to stop should be enough, since federal law requires that they do so if you tell them. However, they can still sue you in court, and, if successful, levy your property.
Only debts that existed at the time of the bankruptcy filing (prepetition debts) are stayed; any debts or liabilities (postpetition debts) acquired after the filing are not affected by the stay.
Prohibitions of the Automatic Stay
The automatic stay prevents creditors or collection agencies from performing any action to collect money from you:
- They cannot sue you or levy your property nor can they record any liens on your property.
- Tax authorities cannot place a lien on your property or levy your property while the stay is in effect.
- Utilities cannot shut off your service, but they can require a deposit to ensure future payments; otherwise they may shut off your service 20 days after you file.
- If you are being prosecuted for a crime, the criminal proceedings are not affected by the automatic stay, but any judgment for money will be.
The automatic stay from a Chapter 7 filing will only temporarily prevent foreclosure, but can be prevented by a Chapter 13, Chapter 12, or Chapter 11 filing. More information can be found here: Will The Trustee Sell Your Home In A Chapter 7 Bankruptcy?
The situation with rent is more complex and discussed in this article: Can Bankruptcy Prevent An Eviction For A Renter. Although a Chapter 7 filing will prevent the landlord from collecting any arrearages, he may be able to evict you anyway. In any case, if you continue to live there, you must continue to pay rent because any debt acquired after the filing is not stayed.
Actions Not Affected by the Automatic Stay
There are some payments and debts that were considered important enough that Congress excluded them from the automatic stay. Most of these payments are priority payments that cannot be stayed nor can they be discharged. The most common types of priority payments are those for alimony, child support, and recent taxes.
All legal actions concerning alimony or child support are unaffected by the stay, including the collection of back child support or alimony. Tax authorities are also not prevented from doing audits or collecting taxes.
Although their options are limited, the automatic stay does not prevent creditors from taking action in the bankruptcy court. Indeed, the very purpose of the stay is so that the bankruptcy court can consolidate the case, which gives it a much better understanding of the debtor's finances and allows the court to give equal treatment to unsecured creditors.
Prior Dismissals Can Limit or Prevent the Automatic Stay
To prevent abusive filings, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) limits or eliminates the automatic stay for serial filers. If you had 1 case pending or dismissed within the year before filing, then the stay will only be effective for 30 days, unless you can convince the court to extend it. If you had 2 dismissals within the year, then there will be no automatic stay with the new filing unless you can convince the court otherwise.
To extend or effect the automatic stay requires notices to your creditors and a court hearing scheduled within 30 days of the filing date, where you would have to convince the judge that the new filing is in good faith and not abusive. Your motion would have to be given to all creditors whose actions you want stayed and provide a reason why your present filing is not in bad faith.
The judge will look at specific signs of bad faith:
- you filed more than once within the past year,
- you didn't cooperate with the trustee or the court,
- you failed to file the necessary documents, or
- you had the previous filing dismissed because a creditor filed a motion for relief from the stay.
Automatic Stay for Secured Property in a Chapter 7 Bankruptcy
If you have secured property and are filing Chapter 7, then one of the required documents that you will be required to file is the Statement of Intention for Secured Debts with the court and you will need to send a copy to each of your secured creditors. You must do this at least within 30 days of the bankruptcy filing date.
You have 3 choices as to what you want to do with secured property, which you will indicate on the form.
- You can surrender the property by giving it back to the creditor.
- Or you can keep the property by
- redemption, which is paying the replacement value of the property to the creditor rather than what is owed on the debt. This will usually be less than what is owed, but if it isn't, then you can, of course, just pay off the debt, or
- by signing a reaffirmation agreement in which you agree to continue making payments.
If you fail to file your Statement of Intention on time, then you will lose the automatic stay with regard to all of your secured property, although the automatic stay will still be in effect against unsecured creditors.
Violations of the Automatic Stay
A creditor who violates the stay can be assessed for actual damages and, for egregious acts, punitive damages, but this is rarely done, since any action taken by a creditor has no legal effect, so there is usually no resulting damage.
The Automatic Stay Ends with Discharge or Dismissal
The stay ends when either you receive a discharge or your case is dismissed or the case is otherwise closed. §362(c) If your case is dismissed or closed without a discharge, then your creditors can commence actions against you to collect their debt. If you do get a discharge, then most of your prepetition debts will have been discharged and creditors are forever barred from attempting to collect the debt. Hence, your former creditors no longer have viable claims, so the stay is not needed.