If you are searching for the term automatic stay, you are probably thinking about filing for bankruptcy.
But on a positive note, an automatic stay offers bankrupt people great relief from debt problems, just when they need it most. We will explain.
What is an automatic stay?
An automatic stay is a federal injunction that temporarily prevents creditors, collection agencies, government departments, and anyone else from collecting, or even contacting and claiming, the money a debtor owes them.
How an automatic stay works
You have to file for bankruptcy, as you have probably guessed. Once the papers are filed, the automatic stay is, well, automatic.
“Once a bankruptcy is filed, the automatic stay takes effect immediately,” says Michael Cibik, lawyer at Cibik & Cataldo PC in Philadelphia, who says he has helped more than 15,000 clients file for bankruptcy over the past 40 years. .
âThis stops any attempt to collect against the debtor. For example, lawsuits, garnishments, foreclosures, sheriff’s sales, repossessions and convictions,â he says.
If debt collectors continue to contact you, let them know that you are declaring bankruptcy and that you are automatically suspended. They may not know. If they continue to sue you, as collection agencies are well aware, they could be fined.
That said, you could find yourself in hot water if you file for bankruptcy after an eviction notice, says Adrienne Hines, a bankruptcy lawyer in Port Clinton, Ohio.
“If you file for bankruptcy before an eviction notice is issued, the court will immediately establish an automatic stay,” she said. âHowever, since 2005, if you file for bankruptcy after an eviction notice, a landlord can choose to ignore the stay. You can still fight it, however. Some states like Ohio will allow you to stay if you update your rent payments. “
What is not included in an automatic stay?
Most debts are suspended, but there are a few exceptions:
- Child support.
- Alimony, also called spousal support.
- Money that a court says you owe.
How long does an automatic stay last?
Typically, an automatic stay lasts until you go to bankruptcy court and your case is closed. However, there are exceptions. If you file for bankruptcy more than once a year, an automatic stay will only last for 30 days.
If you end up filing three times a year – which is not possible with a Chapter 7 bankruptcy but with a Chapter 13 bankruptcy – there will be no automatic stay unless you can convince the court of bankruptcies that you are not a serial bankruptcy filer. .
Another useful thing to remember: While an automatic stay usually lasts until you go to bankruptcy court, a creditor may seek to end the stay by seeking permission from the bankruptcy court, explains. Matthew Zimmelman, bankruptcy lawyer at Valley Stream, New York.
âThis is usually granted in a Chapter 7 if the payments are not made on a vehicle or a house,â Zimmelman explains.
Because, yes, if you want to keep your house or car, you should try to keep making payments – or if you’re really struggling, maybe negotiate to make partial payments.
You might as well. Whether you file Chapter 7 or Chapter 13, you may have to pay money for the car and house at some point.
âBankruptcy doesn’t end with a free house or car,â Zimmelman says.
Examples of automatic stay
If you are still not sure how an automatic stay might apply to your situation, here are some examples of scenarios in which an automatic stay might be applied.
- You learn that your house is going to be foreclosed. But you declare bankruptcy and the automatic stay goes into effect. For now, until your case goes to a bankruptcy judge, you won’t have to worry about selling your home at auction. But if something like this happens, talk to a bankruptcy lawyer. Your home is online. Now is not the time to take to the skies and try out some do-it-yourself legal maneuvers.
- You learn that you are going to be evicted from your apartment. As previously stated, if you get an eviction notice, an automatic stay may not protect you against eviction. If you feel that an eviction notice is coming and you are thinking about declaring bankruptcy, it is better to file the case sooner than too late.
- Your car is taken back. Not anymore. In other words, if you file for bankruptcy and your car is in danger of being reworked, an automatic suspension means it won’t. If it was recently taken back, you may now be able to get it back. But, again, if you want to keep the car, you should try to keep making payments on it in the meantime.
- The credit card companies are going after you. The phone never stops ringing? Perhaps you are being sued by your credit card company (or a previous credit card issuer), or perhaps more than one. An automatic stay stops all of this. The letters should stop coming, and the phone should definitely stop ringing. The lawsuits will usually also stop and disappear, provided that everything is settled in the bankruptcy court.
Does an automatic stay hurt your credit score?
Sure. The automatic suspension itself may not have a real impact on your credit rating, but bankruptcy will. It’s always a big dark spot in the eyes of the credit bureaus.
That said, Cibik says that most credit reports on your bankruptcy are “meaningless.” He explains, âOnce the debtor has filed his case and has been released from his debt, most creditors look at their income and the length of their employment to determine their creditworthiness.
It doesn’t mean that you are going to have a great credit rating. You won’t. But now that you have your debts, or the worst of them, behind you, you may find that you can get a loan more easily than before you filed for bankruptcy.
Nothing in this process is pretty, and bankruptcy can be very stressful. But it all starts with this injunction to basically freeze time so that you can work with the courts to determine which debts you can pay and which you can’t, and which debts, if any, will be discharged. In other words, an automatic stay allows you to move forward in your life.