What does an automatic stay do in a bankruptcy?
There are several reasons why a person who is struggling with high debt could find a personal bankruptcy helpful. For one, a bankruptcy sometimes significantly reduces a person’s overall debt load through debt discharges. Also, a bankruptcy sometimes give an individual a chance to restructure their debt so it is easier for them to make their payments. Today’s post will be focused on another feature of bankruptcy that can be a very big help to debtors: the automatic stay.
Generally, when a personal bankruptcy filing is made, an automatic stay is put in place. What does this stay do? While such a stay is in effect, there are a wide variety of different actions (including making direct contact) that it prevents creditors and debt collectors of the debt the debtor holds from taking against the debtor and it can push the pause button on a wide range of different types of proceedings against the debtor, such as:
- Foreclosure proceedings.
- Eviction proceedings.
- Wage garnishments.
- Utility disconnections.
- Public benefit overpayment collection efforts.
These sorts of proceedings and actions by creditors and debt collectors can potentially impact some very fundamental aspects of a debtor’s life and can also take a pretty big emotional and psychological toll on a debtor. So a reprieve from such actions/proceedings, even a temporary one, can be quite a relief to a debtor. This is why the automatic stay is something a bankruptcy filer sometimes finds to be quite valuable.
Now, the relief of the automatic stay does have its limits. Certain proceedings may have special rules regarding what circumstances have to be present for them to be stayed under a bankruptcy. Also, in some cases, creditors/debt collectors may be able to get a stay lifted early for a given proceeding/action. Thus, sometimes, the reprieve an automatic stay gives a person in relation to a given action/proceeding proves to be a rather short one.
Also, there are certain things that the automatic stay simply does not apply to. We will go over some of these things in our next post.
Source: FindLaw, “The Automatic Stay: Stopping Creditors with Bankruptcy,” Accessed March 9, 2015