When a bankruptcy case is filed an “automatic stay” goes into effect. In legalese a “stay” is putting a halt on something, stopping something. The automatic stay is a provision in the U.S. Bankruptcy Code that makes it illegal for creditors to attempt to collect on debts from a person who has filed for bankruptcy protection. 11 U.S.C. § 362. There are only a few exceptions to the automatic stay.
The automatic stay puts an end to all collection action, including collection phone calls, bills, pending lawsuits, wage garnishments, bank levies, repossessions, and foreclosure proceedings. It takes effect as soon as the bankruptcy petition is filed and generally it lasts through the duration of the bankruptcy case. However, a creditor may ask the Bankruptcy Court for “relief from stay.”
Relief from Stay Motions
When a creditor files a “relief from stay” motion, it is asking the Bankruptcy Court to lift (to end) the automatic stay as to its debt.
For certain creditors, the court is likely to grant a relief from stay motion. For example, a mortgage lender is stayed from moving forward with foreclosure action after the filing of a Chapter 7 bankruptcy case. If the lender wants to continue the foreclosure before the Chapter 7 case closes, it can petition the Court to lift the automatic stay by filing a motion for relief from stay.
The Court may grant the mortgage lender’s motion if the Debtor does not have equity in the property and the property is not subject to administration in the bankruptcy proceeding. If the motion is granted, then the mortgage lender can move forward with the foreclosure process even though the Chapter 7 case is not closed and the automatic stay is still in effect against other creditors.
Exceptions to the Automatic Stay
Other than the Court granting a relief from stay motion, there are a few exceptions to the automatic stay enumerated by Congress in the U.S. Bankruptcy Code. 11 U.S.C. § 362(b). The automatic stay exceptions include criminal proceedings, family law proceedings relating to divorce or parenting, collection on ERISA-qualified pension loans, IRS tax audits, demands for tax returns, or assessment of tax liabilities. However, the IRS must cease and desist from collection action for tax debts while the automatic stay is in effect.
The Automatic Stay Lifts at the End of the Bankruptcy Case
At the conclusion of a successful bankruptcy, the Debtor will receive a bankruptcy discharge order absolving him or her from personal liability to pay back dischargeable debts. Creditors cannot legally attempt to collect on discharged debts. As to those creditors, the automatic stay is no longer necessary.
When the Automatic Stay lifts at the conclusion of the bankruptcy case, certain creditors may begin collection activity again, including student loan lenders, mortgage lenders pursuing foreclosure actions, or car noteholders seeking repossession.
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.