Created By : Amy Nickson
On 15th Apr,20
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The Automatic Stay - All that you need to know about this court injunction
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The US bankruptcy code offers a series of statutes to bankruptcy filers as a means of protection from creditors. Among the various statutes, the 2 most important ones are bankruptcy discharge, and automatic stay.

In this post, we will discuss the essential characteristics of the second one, which is the automatic stay, and its impact when you file multiple bankruptcies in a year. So, here we go.

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.

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.

Last Updated on: Wed, 15 Apr 2020