The Automatic Stay of Bankruptcy is an injunction that automatically stops lawsuits, foreclosure, garnishments, and most collection activity against the debtor the moment a bankruptcy petition is filed. This automatic stay is the equivalent of a restraining order that prevents creditors from taking certain collection actions against you. These collection actions include: repossessing vehicles, foreclosing on homes, telephoning you, sending you collection letters, filing lawsuits against you or continuing with lawsuits that are already in progress, repossession attempts, wage or bank garnishments, recording any liens or judgments, or anything else that attempts to collect a debt or improve a creditor’s position as it relates to you and your underlying debt.
The Automatic Stay is Not Absolute
The automatic stay is not absolute and creditors are given the right to file a Motion with the bankruptcy court requesting a judge to “lift" the automatic stay. By having the automatic stay “lifted", creditors are free to pursue their collection activities. The automatic stay will not prevent Federal, State or local authorities from pursuing criminal action against you. Additionally, lawsuits involving child support or spousal support (alimony) are not stayed and cannot be discharged in bankruptcy.
Secured Creditors and Relief from the Automatic Stay
In certain circumstances, a secured creditor can ask the court to “lift" the automatic stay so that they may pursue recovery of their collateral. For example, an auto finance company can file a Motion to Lift the Automatic Stay if you are delinquent on your car your payments. In those cases, the creditor will be granted its relief and will be permitted to recover the collateral despite the bankruptcy. So if you do not make your payments and the Stay is lifted, you may have your vehicle repossessed. However, if you do not sign a reaffirmation agreement and your car is repossessed after filing bankruptcy you will not be responsible for any outstanding debt related to the vehicle.
The same situation applies to loans that are secured by real estate. The lender will petition the court for relief if you are not making timely payments, if you are not current with the loan, if you are not paying the real estate taxes on the property. Thus, in a Chapter 7 bankruptcy case, the automatic stay will only provide temporary relief if you are not making your mortgage payments. As far as general creditors and unsecured creditors, the automatic stay will continue until the case is discharged. At that point, you will likely be free from any future obligation toward the creditor