Automatic Stay

When a debtor files bankruptcy, a court order known as an “automatic stay” goes into effect. The automatic stay can be a powerful tool for a debtor, stopping creditors and bill collectors in their tracks. The automatic stay prevents creditors and bill collectors from contacting debtors, or otherwise attempting to collect their debt. The automatic stay is usually known for stopping harassment from bill collectors, but it can do much more than that; the automatic stay delays or stops many other actions which would otherwise adversely affect a debtor.

If a debtor is facing eviction, foreclosure, utility disconnections, repayment of public benefits, or his or her wages are being garnished, the automatic stay can help.

During an automatic stay:

  • Garnishments are not deducted from a debtor’s wages, allowing debtors to bring home all of their earnings.
  • For a time, utility companies will be prevented from disconnecting services such as telephone, gas, water or electric.
  • Certain evictions are temporarily halted.
  • Government agencies may not collect money or withhold benefits to collect on overpaid benefits.
  • Foreclosure proceedings are temporarily stopped.
  • The IRS is prohibited from seizing property or income or from issuing a tax lien.

Although the automatic stay is a great help for debtors, it does have its limits. During the automatic stay certain actions such as criminal, alimony, paternity, and child support actions and/or collections are not prevented. For the activities that are halted by the automatic stay, creditors will often ask the bankruptcy court to “lift” or cancel the automatic stay, allowing them to resume their collections. The court does not always lift the automatic stay, but may be inclined to do so if it appears that the automatic stay is not serving its intended purpose or that there is evidence of wrongdoing, such as fraud, by the debtor.

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