Many Buffalo residents have been told that filing for bankruptcy can offer protection from a person’s creditors, but very few understand how this protection is created. The short answer is the “automatic stay,” a provision of the United States Bankruptcy Code that applies to all persons seeking protection under either Chapter 7 or Chapter 13. In this post, the mechanics of the automatic stay will be explained.
What is the “automatic stay”?
A stay is an order issued by a court to prevent parties to a lawsuit from taking certain specified actions. The automatic stay in bankruptcy applies to all parties identified by the bankruptcy petition as creditors of the petitioner. When the bankruptcy petition is filed, the clerk of the court in which the petition is filed sends out an order of the court staying all creditors from pursuing any actions to collect on debts owed to them by the debtor. The stay applies to lawsuits, collection actions such as telephone calls, collection letters, mortgage foreclosure actions, and actions attempting to create a lien for a debt that arose before the bankruptcy petition was filed. The debtor is not required to take any action beyond filing the petition and paying the filing fee to have the stay issued.
Are any claims exempt from the stay?
Some claims are not subject to the automatic stay. Among such claims that affect a significant number of debtors are claims for past due alimony and child support, actions to establish paternity, and various tax collection actions commenced by a state or the federal government. The Code also lists a number of actions that may affect only a few debtors.
How long does the stay last?
Unless the stay is lifted an order from the presiding judge, the stay lasts until the bankruptcy proceeding is terminated by the order that resolves the bankruptcy proceeding. Also, any party to the action may file a petition to lift the stay for any of the reasons stated in the applicable section of the Bankruptcy Code.
The protection provided by the stay is nearly absolute unless the bankruptcy petition was filed in an attempt to defraud creditors. Anyone considering bankruptcy may wish to consult an experienced bankruptcy attorney for an opinion on how the automatic stay will affect the proceeding and the extent to which it will provide effective protection against the debtor’s most aggressive creditors.