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What is an "Automatic Stay"?

Posted by attorney Bert Briones

The automatic stay goes into effect immediately upon the filing of a bankruptcy petition by a debtor. The automatic stay prevents creditors from making collection efforts against a debtor, including phone calls, letters, repossession, foreclosure, lawsuits, garnishments, and levies.

The purpose of the automatic stay is to protect the debtor and the debtor’s property from the reach of creditors while at the same time giving the debtor an opportunity to work out a repayment plan. In other words, the automatic stay freezes the debtor’s assets, preventing individual creditors from picking away at them and ultimately destroying the debtor’s chance at a fresh start.

In a Chapter 7 case, the automatic stay protects not only the debtor’s property, but any equity he may have in that property. It also ensures that any non-exempt property is distributed fairly among the debtor’s unsecured creditors.

In a Chapter 13 Case, the automatic stay protects property of the debtor which may be critical to the success of his Chapter 13 plan. Moreover, in a Chapter 13 case, the automatic stay prevents creditors from making collection efforts against a non-filing co-debtor.

As to property, the automatic stay remains in effect until it is lifted or terminated by the court or until such time as the property is no longer a part of the bankruptcy estate. As to a debtor, the automatic stay remains in effect until the case is dismissed, the case is closed, or the debtor receives or is denied a discharge.

Official notice of the automatic stay is included in the Notice of Chapter 7/13 Case which is served on creditors by the Clerk of the Bankruptcy Court. If the case is filed on the eve of a foreclosure or repossession, the debtor’s bankruptcy attorney should notify the creditor of the bankruptcy. If a lawsuit is pending against the debtor, his attorney should file a Notice of Bankruptcy with the court in which the lawsuit is pending.

There are certain legal situations which are exempt from the reach of the automatic stay. These situations include:

• The commencement or continuation of criminal proceedings • The collection of restitution or fees incidental to a criminal proceeding • Contempt proceedings meant to preserve the integrity and authority of the court • The collection of alimony, maintenance, and child support payments • Proceedings to establish paternity or to modify alimony, maintenance, or child support • Where a landlord has obtained a pre-petition judgment for possession of the property • Certain instances where a previous bankruptcy case has been dismissed • Where there is a presumption that the case was not filed in good faith

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