What is the Automatic Stay?
Once a bankruptcy petition is filed, it becomes illegal for a creditor to collect the debts from a debtor. This injunction is called the Automatic Stay, which is one of the main reasons that individuals and businesses choose to file bankruptcy. The automatic stay is a legal protection that operates for a debtor when she files bankruptcy. A court order is not necessary to impose the stay, thus “automatic.” If the creditor knowingly violates the stay against the debtor or the debtor’s property, then the creditor can be found liable to the debtor for any damages, attorney fees, and costs incurred because of the violation. It is also possible that a court may award punitive damages if the violation is egregious.
Benefits of Bankruptcy
Therefore, the automatic stay can stop foreclosures, repossessions, law suits, levies, harassing calls, and collection letters. Furthermore, if a car has been repossessed within 10 days of the bankruptcy filing, it is possible for a debtor to get the car back with certain conditions, such as showing proof of auto insurance. There are some limitations, however, of the automatic stay, such as criminal proceedings or child custody cases. In those instances, the automatic stay does not prevent those legal proceedings.
The automatic stay can stop an evictions and is another area where the automatic stay can help an individual, but each circumstance is different and there may be restrictions. For instance, if there is already a judgment for possession of the property, then the automatic stay does not stop the eviction.
Automatic Stay Limitations
Lastly, the automatic stay can also be limited for a debtor who has had more than one active bankruptcy case within the past year. If a debtor has had one prior case, then the automatic stay only lasts for 30 days. Additionally, if the debtor has had two prior cases in the past year, then the automatic stay does not exist at all upon the filing of a bankruptcy case. In both circumstances, however, the debtor’s attorney can file a motion asking the court to extend the automatic stay beyond the 30 days, or for the court to impose the automatic stay.
Even though some restrictions may apply depending on the debtor’s individual circumstances, the automatic stay is a great benefit to filing bankruptcy.