The automatic stay is one of the most important provisions of the Bankruptcy Code. The stay halts all collection activity against a bankruptcy filer. But when does the stay end?
The Automatic Stay Protects Debtors
The automatic stay is codified in 11 U.S.C. ? 362. With certain exceptions, the stay prohibits parties from taking collection activity against a bankruptcy filer.
The bankruptcy code affords debtors "breathing room" when they declare bankruptcy. The automatic stay gives debtors a chance to either liquidate their debts and assets, or reorganize their finances. Either process would be meaningless without some protection for the debtor.
The stay stops post-filing wage garnishments, bank levies, lawsuits, and even foreclosures. The stay also stops harassing phone calls and collection letters. The bankruptcy court can punish a creditor that violates the automatic.
The Automatic Stay Lasts Until Discharge
In a typical Chapter 7 bankruptcy, the automatic stay remains in effect until the debtor is discharged. See 11 U.S.C. ? 362(c)(2)(C). This is not the end of the analysis. With respect to property of the estate, the stay lasts until the property is longer part of the bankruptcy estate. See 11 U.S.C. ? 362(c)(1). In most cases, this means that creditors cannot take action against a debtor's property until the bankruptcy is closed. See 11 U.S.C. ? 554(c).
Further complicating things is the fact that not all bankruptcy cases end in a discharge. The stay terminates when a bankruptcy case is closed or dismissed, whichever is earlier. See 11 U.S.C. ? 362(c)(2).
The Timing of When the Automatic Stay Terminates is Important
Remember, bankruptcy does not eliminate all debts. A creditor with a non-dischargeable debt will be able to resume collection activity as soon as the stay ends. If the creditor tries to collect prior to the end of the stay, the creditor can be held in contempt of court and punished.
Secured creditors also have to abide by the stay. Typical creditors that have secured debts include car lenders and mortgage companies. A car lender can repossess a bankruptcy filer's car as soon as the automatic stay ends if the bankruptcy filer isn't current on his or her car payments.
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