As soon as you file bankruptcy, irrespective of what chapter you file under, the automatic stay goes into effect.
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Amy Nickson On 15th May,16
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The Automatic Stay - All that you need to know about this court injunction

As soon as you file bankruptcy, irrespective of what chapter you file under, the automatic stay goes into effect. It prohibits your creditors from taking any actions against you or your property but for a few specific circumstances. This stay is automatic, as the name suggests, and neither the court nor you require doing anything specific to enact it. As a matter of course it comes into effect as soon as you file bankruptcy petition as a result of the law in question. Though a notice is sent to all your creditors who are listed in the petition, yet it is effective to even those creditors who don’t receive any kind of formal notice. In case a creditor contacts you after you’ve filed bankruptcy, all you need to do is to inform him of the case so that they’re aware of the automatic stay.

Automatic stay - It’s ulterior motive

The objective of the automatic stay is to allow only the bankruptcy court to deal with your financial issues, with the intention and aim of giving you a fresh start, while treating each of your creditor equally. All actions of collecting money and disbursing it among your creditors is thrust upon the bankruptcy court so that the entire process of resolving your debt problems can be well coordinated.

To accomplish the goals of automatic stay, it has the following characteristics:

  • When you file any form of bankruptcy, the automatic stay comes into effect
  • The automatic stay remains in effect until your case is dismissed or you receive a discharge or the bankruptcy court grants relief from the automatic stay to all those successful creditors who filed a petition for relief
  • The Stay is incumbent on all creditors, including business, individuals and federal agencies

However, the prosecution of domestic support obligations, tax proceedings (though the stay prohibits the tax authorities from collecting taxes) and criminal proceedings can continue despite the automatic stay.

Essential characteristics of the automatic stay

Protects the debtor

Offers a stipulated time period within which all judgments, foreclosures, repossession of property and collection activities are hung up by the creditors.

Offers immediate relief

The moment you file a voluntary or involuntary bankruptcy petition, the Staybegins at that moment. Since it halts all kinds of collection activities, the debtor is offered immediate relief from credit and debt collector harassment.

Applicable to everyone

All secured and unsecured creditors are prevented from pursuing any kind of effort to collect pre-petition debts. However, the Stay does not prohibit a creditor from taking any action against other entities like insurers, co-debtors and co-guarantors.

Creditors should abide by the stay

All creditors are bound by the automatic stay even when they’re not aware of the bankruptcy filing. As long as the Stay remains in effect, even sending the reminder letters should be discontinued. Any creditor who violates the automatic stay will be responsible for the damages.

The stay is temporary

The Stay is dismissed when the property is no longer a property of the court, when the case is closed or when you get a discharge from all liabilities. Hence, although this is temporary, soon after the discharge is received, this means a permanent court order against the future efforts to collect a debt that has already been discharged.

Automatic Stay - The exclusions and the reservations

Congress had decided that there are certain proceedings and debts that are considerably critical to “trump” the automatic stay. There are some exceptions according to which collection actions can continue just as if you haven’t filed bankruptcy.

Check out the actions that are not stopped by the Stay.

Divorce and child support

All kinds of proceedings that are related to divorce or parenting stay unaffected by the Stay, including actions to:

  • Collect and set current child support payments and alimony
  • Analyze visitation and child custody
  • Authorize paternity in lawsuit
  • Detain income to collect child support
  • Report overdue support to the credit bureaus

Pension loans

The automatic stay doesn’t prohibit detaining from a debtor’s income to repay a loan from a person to qualify for ERISA. This includes most of the job-related pension funds and retirement plans.

Tax Proceedings

The IRS can continue with certain actions like executing a tax audit, publishing a tax deficiency note, dispatching a tax return and demanding payment of an assessment.

Multiple bankruptcies within a year- Will the Stay still be imposed?

Two bankruptcies within a year

If you’re someone who filed bankruptcy and then again filed bankruptcy within a year of dismissal of the first petition, there is an automatic presumption that you filed the second one in bad faith and hence the Stay expires soon after 30 days. In case, you can prove to the court that you filed the second case in good faith with the creditors, the court might think of extending the automatic stay.

Three bankruptcies within a year

If you’ve filed more than 2 bankruptcies in the previous year and then you file a third bankruptcy, the same assumption of bad faith still exists and thereafter the automatic stay won’t take effect upon the third filing.

Joint bankruptcy filings

If you had filed individual bankruptcy which was later dismissed and then you file a joint bankruptcy along with your spouse in the same year, the restrictions on the automatic stay can only be imposed on you. This implies that while your automatic stay won’t come into effect, your spouse will be entitled to the protection.

The Automatic Stay of the Bankruptcy Code is equally effective as any other court-ordered injunction and hence any kind of violation is punishable. Any debtor with questions about automatic stay and their specific effect on the debtor’s case should consult a bankruptcy attorney in their state to avoid future discrepancies.

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