When a bankruptcy case is filed, all of the debtor’s assets, debts, income, and other financial aspects are placed under the jurisdiction of the United States Bankruptcy Court. The Bankruptcy Code imposes a temporary injunction against creditor collection immediately and automatically the moment the case is filed. This injunction is commonly refered to as the "automatic stay" and stops lawsuits, foreclosures, garnishments, and all collection activity during the case.
In all bankruptcy cases the automatic stay stops the commencement or continuation of a collection action against the debtor or the debtor’s property. A Chapter 13 bankruptcy extends this protection to co debtors who are liable with the debtor on a consumer debt. This is to prevent indirect harassment of the debtor during the Chapter 13 repayment period.
The automatic stay applies to creditors and their representatives, like collection agents and attorneys. The stay prohibits:
* The commencement or continuation of a lawsuit
* Collection calls, letters, emails, etc.
* Repossession
* Foreclosure sales
* Wage garnishment or bank levies
The automatic stay will continue throughout the case until either the bankruptcy judge orders the stay modified; the debtor receives a discharge; or the item of property is no longer part of the bankruptcy estate. Consequently, the automatic stay injunction is only temporary and will eventually expire. If a debt is discharged, the bankruptcy court’s discharge order creates a permanent injunction against collection.
Because of the enormous power and broad reach of the automatic stay, Congress has carved out a few exceptions. The automatic stay does not stop the following:
* Criminal proceedings
* A legal action to create or modify a family support order (like for child support)
* An attempt to collect against property not part of the bankruptcy estate
* A tax audit, demand for tax returns or assessment of tax. However, the collection of any pre-bankruptcy tax debt is still stayed during the case.
A creditor who willingly violates the automatic stay can be found in contempt of the court’s order. The court may penalize the creditor and award actual damages, punitive damages, and attorney fees. Violations of the automatic stay often occur early in the bankruptcy case when the creditor is not aware of the bankruptcy filing. It is therefore important to immediately notify your creditors of your bankruptcy filing when there is a pending collection action (e.g. foreclosure, repossession, lawsuit, etc.)
The bankruptcy automatic stay will stop your creditors dead in their tracks. If you need this type of powerful relief relief, speak with an experienced bankruptcy attorney. Your attorney can explain how the federal bankruptcy laws can protect you and your property.