Learn what protections are enacted when you file for bankruptcy.
While the main benefit of filing for bankruptcy is of course debt relief, the process does also bring some side benefits. One of the biggest is the automatic stay, which is basically a temporary cease and desist order for various legal actions against you that will last for the duration of the bankruptcy. For planning purposes, it will be very helpful to know which actions can and can’t be held off by an automatic stay.
Actions an Automatic Stay Can Stop
Utility Disconnections: An automatic stay will prevent your gas, water, or electricity from being turned off due to nonpayment for at least 20 days, or possibly more if there is a safety issue involved.
Foreclosure: Many individuals appreciate the protection that an automatic stay gives against foreclosure. In most cases, the bankruptcy must be Chapter 13 not Chapter 7 to make the most of the foreclosure protection and also keep the home.
Eviction: Unless you already have a judgment against you, an automatic stay will typically help prevent an eviction. However, your landlord will be able to get the courts to lift the stay sooner or later, especially if they allege you have been endangering the property or engaging in illegal activities there.
Collections: Debt collectors who have purchased various unsecured debts will have to suspend collection activities and stop contacting you as soon as you file for bankruptcy. If you received an overpayment from some public benefits agency, the automatic stay will also apply to their collection efforts.
Wage Garnishments: If your wages are being garnished for repayment of a debt, the automatic stay will usually stop this activity and let you take your full salary home.
Actions an Automatic Stay Can’t Stop
Tax Actions: While the IRS can’t seize property or income while an automatic stay is in effect, they can still conduct audits, issue deficiency notices, and demand tax returns.
Support Actions: If someone is seeking to establish an order requiring you to pay child support or alimony, your bankruptcy filing won’t interfere with this action.
Pension Loan Repayments: If you have borrowed money from a job-related pension or an IRA, it is highly likely that the automatic stay will not stop wage garnishments intended to repay this loan.
Limitations of an Automatic Stay
The law provides for creditors to petition the court to remove or lift the automatic stay in a variety of circumstances. One common situation is when an individual files for bankruptcy to stop a foreclosure, despite having no possible means of keeping the property even after the bankruptcy. In this case the lender would likely have an easy time getting the stay lifted because it is only delaying the inevitable.
Another important limitation to be aware of is that the duration of the automatic stay decreases with every filing you make within a year. So if your first filing was rejected and you refile, that filing will only grant a 30-day stay (with the option to petition for an extension) if granted. If you file a third time in one year, no amount of stay will be automatically applied and you will only be able to receive 30 days of stay if you specifically petition for it.
If you have questions about automatic stays or about filing for bankruptcy, please contact California Bankruptcy Relief now.
