What is the automatic stay in bankruptcy?

What is the automatic stay in bankruptcy?

On Behalf of | Sep 14, 2021 | Consumer bankruptcy

When a consumer in Wall Township, new Jersey, is burdened with debt, they might choose to file bankruptcy. Many filers choose Chapter 7 bankruptcy, which is a liquidation process, or Chapter 13, which is a structured payment plan. If a consumer gets too many calls from creditors, bankruptcy prevents that with the automatic stay.

Overview of the automatic stay

The automatic stay is part of the bankruptcy code for all chapters that prohibits creditors from pursing the debt further. It is effective as soon as the debtor files the bankruptcy petition and remains active until the case closes. Chapter 7 bankruptcy cases commonly close within four to six months, and Chapter 13 cases commonly take three to five years.

If a debtor is at risk of foreclosure, it temporarily halts the process, giving them time to work it out. It also temporarily prevents evictions, wage garnishments and utility shutoffs for 20 days. Consumers cannot file bankruptcy just to avoid utility shutoff, but it can be included with other debt.

When creditors may request a lift

Creditors commonly request a lift of the automatic stay for foreclosures or repossessions already in action or if the debtor is behind on payments or insurance. However, the court could deny the request if the home has enough equity to sell.

Otherwise, the creditor must prove that selling the property won’t affect other creditors, and they may lose money if they wait. If a tenant has already gotten an eviction judgment against them, the stay won’t remove it, especially in disputes.

Other considerations

The automatic stay also does not stop actions such as criminal proceedings and domestic obligations litigation. These actions can proceed without permission from the court.

If a creditor violates the automatic stay, they may not have gotten the notice or they might be willfully contacting the debtor anyway. The debtor can file complaints and sue creditors that violate the automatic stay.