Mitchell Allen is the founder and CEO of the Debt Education Certification Foundation, an organization that provides credit counseling certificates and debtor education courses for those who are filing for bankruptcy. He’s also the founder of legal services marketing agency LeadRival. He’s the author of numerous books on debt and bankruptcy.
Mitchell is not an attorney and his answers should not be considered legal advice. Please consult with an attorney about your legal situation. Full Bio
What is a bankruptcy stay?
When you file for bankruptcy in cases of Chapter 7 or Chapter 13, it triggers an injunction against creditors that discontinues action by them against you or against your property. This is known as a bankruptcy stay or an automatic stay. The stay goes into effect immediately, and will prohibit creditors from continuing with their collection activities after it happens.
What the Bankruptcy Stay Prohibits
If you filed for Chapter 7 or Chapter 13 bankruptcy, then the automatic stay can provide some relief and an opportunity to regroup during bankruptcy proceedings, especially if you are at risk of eviction, foreclosure or having your wages garnished on the job because of it. The automatic stay can be a powerful motivator to file for bankruptcy because of these types of issues.
During the stay, a creditor is prohibited from doing the following.
- Disconnecting Utilities – This prevents utility disconnections for at least 20 days.
- Foreclosing on Your Property – These are stopped temporarily. Chapter 13 bankruptcy is usually better to file if you are trying to keep your house. However, the creditor will often be able to proceed with the foreclosure eventually.
- Eviction – If you are being evicted from your home, the automatic stay may provide some help.
- Collections for the Overpayment of Public Benefits – If you were overpaid while receiving public benefits, the automatic stay prevents this collection. Keep in mind, though, that if you lose eligibility for benefits, the automatic stay won’t prevent the agency from possibly denying or terminating your benefits altogether.
- Multiple Wage Garnishments – Filing for bankruptcy stops this type of garnishment of wages. Many people have been known to file for bankruptcy if more than one wage garnishment is at risk.
A Note on Foreclosures
Recent bankruptcy laws make it easier for landlords to evict you, especially if they have a judgment of possession when you file. An automatic stay won't change the eviction proceedings in this case, and the eviction will proceed as it would have happened without the stay. Also, the automatic stay won’t be effective if the landlord brings allegations against you of using controlled substances or property endangerment. In other cases, the automatic stay will probably give you a few extra days or weeks. After that, the landlord may ask the court to lift the automatic stay and, in some cases, the judge will allow it.
The bankruptcy stay will remain in place until:
- The judge lifts the stay at the creditor’s request.
- The debtor obtains a discharge.
- The asset is no longer a property of the estate.
The bankruptcy stay won’t halt the following:
- Criminal Proceedings – Those will be broken down into debt and criminal components, which will then be separated into two parts. The bankruptcy stay won’t stop the criminal proceedings from going forward.
- Support Actions – Such as any lawsuits that are brought forth to establish paternity or to modify, establish, or collect alimony or child support.
- Specific Tax Proceedings – Such as IRS tax audits and tax deficiency notices, demand for tax returns, or assessment of tax (note: the stay will disallow the IRS from seizing your income or property and issuing any tax liens).
- Loans from Your Pension – Money can be taken out of your income for repaying a loan for certain pensions, an example being IRAs and job-related types.
- Multiple Filings – If you had an unresolved bankruptcy case from the previous year, then you can expect the stay to automatically terminate after 30 days. That is depending on whether you, the trustee, a creditor or the U.S. trustee asks for a stay to continue and proves that the current bankruptcy case was filed in good faith. If a creditor submits a motion to lift the stay pending a prior case, the court will assume that you acted in bad faith, and you'll have to overcome this assumption to get the protection of the stay in your current bankruptcy case.
Creditors Can Get a Bankruptcy Stay Removed
Usually, a creditor can get around the automatic stay by asking the bankruptcy court to remove the stay if it is not serving its intended purpose. In order to lift it, the creditor must show the judge at a hearing that there is just cause for relief from the automatic stay by showing that their interest in the property under consideration is not protected adequately. The creditor can also show that you do not have equity in the property, or that it is not needed for reorganization, and the judge may lift the stay.
If the judge grants relief from the stay, it won’t remove the property from the estate, nor will it grant the creditor estate ownership. It just removes the stay and restores state law rights to the parties involved, and allows the creditor to enforce the rights to the extent to which the relief from the stay order allows.