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Automatic Stay

Definition - What does Automatic Stay mean?

An automatic stay is a legal proclamation that prohibits creditors from filing court proceedings against debtors after the point at which the bankruptcy is applied for, and forces creditors to wait through the bankruptcy process before finding out how much they will receive by way of repayment, and over what time period the payments will be made. When an automatic stay is issued, the creditor will be placed in a state of limbo where they will be unable to recoup their losses, and will not know for certain whether the entire debt or part of it will be wiped away by the judge, and/or considered void due to the bankruptcy.

Justipedia explains Automatic Stay

An automatic stay also prohibits creditors from selling collateral as a means to recoup their losses. It also prohibits a creditor from selling on the debt of the bankrupt person in order to collect losses. The minute a person files for bankruptcy, an immediate injunction is placed on all the bankrupt individual's creditors from further pursuing outstanding debt; the act of placing this injunction and its related effect is referred to as an automatic stay.

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