After you file for bankruptcy, you receive an automatic stay. This is meant to protect you from creditors and bill collectors during the bankruptcy proceeding. Any lawsuit filed by a creditor, government agency, or collections agency is stopped via the automatic stay as well, offering you powerful protections. While the automatic stay in bankruptcy is a desirable protection, it is important that you understand what it can and cannot do. Just like any other protection, there are limitations to automatic stays.
What an Automatic Stay in Bankruptcy Can Do
An automatic stay is designed to help your financial situation in several ways:
Stop Utility Disconnections – If you are behind on a utility bill or multiple utilities, the company will threaten a shutoff of their service until past due payments are submitted. Automatic stays can prevent these companies from turning off services for several days.
Halting Foreclosure Proceedings – In some cases, an automatic stay may prevent foreclosure proceedings from moving forward. However, this is a temporary stop and the financial institution still has other means for continuing the foreclosure once the automatic stay has been lifted by the courts. If your primary goal of bankruptcy is to keep your home, consider filing for Chapter 13 instead of Chapter 7.
Cease Evictions – Automatic stays can also stall any eviction proceedings if a landlord is attempting to evict you. However, if your landlord has already received a court-issued wrongful possession judgement, the automatic stay will not stop the eviction proceeding.
Stopping Government Agencies from Taking Back Public Benefits – If you are receiving public benefits, the automatic stay can stop the government agency issuing those benefits from taking them back. This only applies to overpayments for public benefits. While you are protected via automatic stay, your bankruptcy filing may disqualify you for future benefits; therefore, the government agency then has the right to collect overpayments.
Stopping Wage Garnishments – After the automatic stay goes into effect, all wage garnishments will cease until that automatic stay lifts.
What an Automatic Stay Cannot Do
The automatic stay does not help all financial situations or consumers. Some ways the automatic stay cannot assist include:
Taxes – The rules regarding past due tax obligations are different than other consumer debts. The automatic stay will not prevent the IRS from performing an audit, nor will it prevent the IRS from issuing a tax deficiency. However, the IRS cannot issue a tax lien against income or property during an automatic stay.
Child Support Payments – If you have a pending lawsuit for past due child support, the automatic stay will not help any modifications or collections for those payments.
Criminal Proceedings – Automatic stays will not prevent debts associated with criminal acts. Therefore, if you are convicted of petit theft and are required to pay restitution, the automatic stay will only cease the repayment portion – not the community service or jail time requirements of your sentence.
Automatic Stays Are Complicated – Contact a Bankruptcy Attorney with Questions
The automatic stay is complex and creditors can still request that the courts lift the injunction and remove the stay – allowing them to proceed with collection attempts. It is important to meet with a bankruptcy attorney to explore your options and understand your rights under the automatic stay rule for bankruptcy. Jodat Law Group, P.A. can assist you with your Chapter 7 or Chapter 13 bankruptcy. Call us now at 877-JodatLaw or contact us online to get started.