What is an Automatic Stay?
When you file for bankruptcy, it initiates a court-ordered injunction called an automatic stay. This is a provision in United States bankruptcy law that temporarily prevents creditors and collection agencies from pursuing debtors for money that they owe.
If you are being sued by a collector, your wages are being garnished, or your house is being foreclosed, the quickest way you can end all these actions and experience immediate relief is through the automatic stay. Generally, an automatic stay stops wage garnishments, some cases of evictions, repossessions, property attachments, foreclosures, and even collection calls and letters.
For example, if you’re past due on your mortgage or your car loan and you file for bankruptcy, creditors can’t foreclose on your home or repossess your car. In case you are being evicted from your home, the automatic stay may provide some help. If you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy before your landlord gets a judgment for possession, the automatic stay will prevent the landlord from starting the eviction process.
The automatic stay gives the debtor a breathing space. It allows you to work out your finances without worrying about harassing creditors and debt collectors. With the help of the bankruptcy trustee, you will have time to evaluate your financial situation and develop a repayment plan. A reliable bankruptcy lawyer in Royal Oak can help you understand the benefits of an automatic stay during the bankruptcy process.
How Long Does the Automatic Stay Last?
The automatic stay ends when the bankruptcy case ends. It remains in effect until the debtor receives a bankruptcy discharge and until the bankruptcy case is closed. However, if a debt has been discharged, the creditor cannot try to collect it.
Although the automatic stay provides immediate relief to many bankruptcy filers, there are limits to what it can do. It only offers temporary protection during bankruptcy. The length of the automatic stay depends on the type of chapter that you will file. Chapter 7 usually lasts for 3-5 months while Chapter 13 could take anywhere from three to five years. A top-ranking Michigan bankruptcy lawyer can help you determine the length of the automatic stay that applies to your case.
To prevent abuse of the bankruptcy process, the automatic stay does not last as long for repeat filers. If you’ve filed for bankruptcy within the last year, the automatic stay will last 30 days. If you have filed two petitions, the stay won’t attach at all. In both cases, you can ask the bankruptcy court to extend it by filing a motion.
In some cases, the bankruptcy court may decide to lift the automatic stay earlier than expected, depending on the circumstances. This usually happens when a secured creditor petitions the court and files a motion to lift the stay for a valid reason. For example, if the court decides to lift the automatic stay, the creditor can continue the repossession or foreclosure of your property that secures the debt – especially if you have stopped making payments or are behind on monthly payments.
Statement of Intention
Furthermore, keep in mind that you must submit a Statement of Intention within 30 days of filing your bankruptcy petition. This is a document that you need to present to the court in which you can state your intentions with collateral property on whether you will redeem the property or reaffirm the debt. If you miss this deadline, the court will immediately lift the automatic stay on repossessing the properties.
What are the Limitations of an Automatic Stay?
The automatic stay comes with a lot of benefits to a debtor. However, it has limitations on what it can protect. Not all legal actions are subject to the automatic stay. A qualified Michigan bankruptcy attorney can help you know the actions that cannot be stopped by an automatic stay.
Bankruptcy filing and automatic stay cannot stop any criminal proceeding. In addition, an automatic stay does not have the power to prevent any lawsuit that tries to establish, modify, or collect child support payments and alimony. The same rule applies to a lawsuit that is filed against an attempt to establish paternity.
The automatic stay can protect you against wage garnishment. However, employers can continue to deduct your pension loan payments through garnishment. Money can still be withheld from your income to repay job-pension loans.
Lastly, the collection of non-dischargeable taxes cannot be stopped by an automatic stay. The IRS can still audit you; however, the automatic stay does temporarily stop the IRS from issuing a tax lien or seizing your property or income. Whether you’ll be responsible for the tax after your bankruptcy case will depend on whether the tax will be discharged in a Chapter 7 bankruptcy or whether you’ll pay the debt under Chapter 13 bankruptcy.
What Happens if the Creditor Violates the Automatic Stay?
Once you file for bankruptcy, your creditors must be notified immediately. The court usually takes several days or weeks to mail creditors the notice of the bankruptcy and the automatic stay. Once it is confirmed that the creditors have received the notice of the debtor’s bankruptcy filing, they are expected to comply with the automatic stay.
If they do anything in violation of that automatic stay even after receiving the notice, then that creditor shall be held in contempt and sanctioned by the bankruptcy court. Violating the stay is a serious offense that may result in court fines or the debtor filing a lawsuit against them. Creditors and debt collectors are not allowed to call or send letters to the debtor demanding repayment of the debt, garnish their wages or other monetary assets, or repossess properties without the permission of the court. Intentionally ignoring the automatic stay is a violation of the Fair Debt Collection Practices Act.
A creditor or a debt collector who willfully violates an automatic stay shall be held liable for punitive damages caused by the violation. Any action the creditor takes in violation of the stay has no legal effect. An individual violating the automatic stay shall face penalties, provided the debtor files the proper paperwork to sue the creditor. A competent Royal Oak bankruptcy lawyer can help you take legal actions against the violators of the automatic stay.
Hire an Experienced Michigan Bankruptcy Lawyer Now!
Bankruptcy can be your last resort in solving your debt problems. When you declare bankruptcy, an automatic stay will take effect and can protect you from harassing debt collectors. The automatic stay is an important part of the bankruptcy process that can grant you peace of mind while pursuing debt settlement and financial freedom.
Bankruptcy may be frightening but it may be the only way for you to have a fresh start with your finances without accumulating more debt. Whatever the case may be, consult a competent Royal Oak bankruptcy attorney at Hammerschmidt Stickradt & Associates. Our bankruptcy law firm will help you decide whether bankruptcy is the best option for your financial situation. We will walk with you throughout the bankruptcy process.
Call us now at 248-609-6304 and schedule a free consultation.