What is the automatic stay?The Automatic Stay is one of the fundamental debtor protections provided by the bankruptcy laws. It goes into effect against virtually all creditor activity the moment the bankruptcy case is filed with the court. Usually people have been harassed by creditors for an extended period of time and need some relief from that harassment.
A creditor with a claim that arose before commencement of the bankruptcy filing must stop all collections efforts. The stay puts a stop to all collections actions including credit card debts, lawsuits, foreclosure actions, repossession attempts, judgments, and wage garnishments. The automatic stay puts a temporary stop to any phone calls or letters from any of the above listed collectors.
The protection is automatic in most cases, no hearing is held, no judge's signature is required. It is simply invoked by the filing of the bankruptcy and the assignment of a case number. All creditors are immediately bound by the stay and they will go through great lengths to avoid violating it, as willful violation can result in severe penalties against the creditor. The stay usually remains in place until the conclusion, dismissal, or discharge of the bankruptcy unless the creditor brings a motion for relief from the stay.
The stay is temporary and does terminate automatically upon the occurrence of specified events, e.g. a hearing for relief, or dismissal or discharge of the bankruptcy case. If a secured creditor wants to move forward with their collection actions prior to the end of your bankruptcy they will need to file a motion with the bankruptcy court. The creditor will file what is called a motion from relief from the automatic stay. This motion details the reasons they feel that they should be able to move forward with collection actions against you. Usually the motion is based upon the creditors argument that their collateral is losing value and if they do not move forward they will suffer additional losses. A secured creditor will most likely seek relief from the stay if the property with significant value is subject to unacceptable risk, is rapidly depreciating in value, or when one is significantly behind on their mortgage.
One exception to the automatic stay is if multiple cases have been filed by the same debtor. An example would be that someone files a case that gets dismissed and then immediately files another case. The stay is still automatic for the second filing but if a third filing is required then the stay is not automatic. In this case a motion would need to be brought before the bankruptcy judge to obtain stay protection.