Bankruptcy
Automatic Stay
Automatic stay summary:
An automatic stay is a court order that goes into effect immediately after you file for bankruptcy. This court order prevents most creditors from pursuing collections while the case is pending.
Creditors usually can’t sue you, foreclose on your property, garnish your wages or contact you about your debt while an automatic stay is in place.
An automatic stay usually remains in effect while your bankruptcy case is open, with a few exceptions.
Automatic Stay Definition and Meaning
An automatic stay is a court order that goes into effect immediately after you file for bankruptcy. It prevents most creditors from pursuing collections while the case is pending. An automatic stay is an important protection if you’re filing for bankruptcy. It gives you time to consolidate your debts into a single case, rather than settling with each creditor.
How Does an Automatic Stay Work?
When you file your bankruptcy petition, you’ll list all of your creditors. The court sends each creditor a letter notifying them that you’re seeking bankruptcy. If you don’t list a creditor, the court won’t notify them, so it’s important to double-check your petition and make sure your list is complete.
The stay is automatic in that it goes into effect as soon as you file for bankruptcy protection; you won’t need to ask a judge to grant you an automatic stay.
Types of Protection an Automatic Stay Provides
While an automatic stay is in place, creditors usually can’t:
File or continue a lawsuit against you
Foreclose on or repossess your property
Garnish your wages
Call you about your debts
Send you debt collection letters
If a creditor violates an automatic stay, you can notify the bankruptcy court. Creditors may face discipline if they don’t follow the rules imposed by the stay.
How Long Does an Automatic Stay Last?
An automatic stay usually remains in effect for as long as the bankruptcy case is open. A Chapter 7 bankruptcy, known as liquidation bankruptcy, typically takes four to six months to complete. Chapter 13, also known as reorganization bankruptcy, takes three to five years. Creditors are prohibited from pursuing any debt that’s discharged through bankruptcy.
If you’ve had a bankruptcy filing dismissed within the past year, an automatic stay will only last 30 days. However, you can file a motion to extend the stay. An automatic stay also won’t go into effect if you’ve had two bankruptcy cases dismissed in the year before your most recent filing.
An automatic stay doesn't prevent all legal actions against you. For example, it won’t stop criminal proceedings or child support collections. Creditors can also file a motion for relief from the stay, where they ask a judge to allow them to resume collection efforts.
It’s essential to talk to an experienced bankruptcy attorney if you have questions about what an automatic stay covers, or the timeline. If you can’t afford an attorney, you can check with lawhelp.org about legal aid resources near you or find your local bankruptcy court and ask if free or low-cost help is available.
Automatic Stay FAQs
Is debt relief the same as bankruptcy?
Debt relief is similar to bankruptcy because it allows you to satisfy unsecured debt for less than the amount owed. However, there are differences.
Bankruptcy is a matter of public record. Debt settlement is a private process. Chapter 7 bankruptcy typically takes a few months, while debt relief usually takes two to four years. Chapter 13 bankruptcy takes three to five years. Debt relief and bankruptcy are similar in some ways. They can both result in you paying less than the full amount you owe.
However, note that about half of Chapter 13 bankruptcies result in full repayment, plus bankruptcy and attorney fees. That means those people might have paid less if they had not filed for bankruptcy. So if you don't qualify for Chapter 7 or you don't want to lose assets, debt relief might help you more than Chapter 13.
What is the difference between credit counseling, debt settlement, and bankruptcy?
Credit counseling can help you learn to budget and stop overspending. Counselors can enroll you in a debt management plan where they typically lower your interest rates and set up a payment schedule to simplify debt repayment and make it more affordable.
Debt settlement means convincing your creditors to accept less than you owe as payment in full. They may be willing to do so if you cannot afford to repay the full amount.
Bankruptcy is a court-ordered plan in which you either surrender assets or pay into a plan to discharge some or all of your debts.
Can credit card companies sue you after you file for bankruptcy?
Once you file bankruptcy, creditors, including credit card companies, are subject to an automatic stay. That’s a legal order that prevents them from making any collection attempts, including lawsuits. Creditors can file a motion to lift the stay, however, which could be successful if they can show possible bad faith or fraud.
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