So, that having been said, what does the automatic stay prevent?
- Collection of prepetition debts, whether an action has been filed or not. This also protects you from collections on any judgements that have been entered against you in court.
- Any proceedings against you that are not necessarily related to collection of a debt, which includes personal injury litigation, administrative agency actions, etc. Note, however, that this does not necessarily stay any actions being brought by you, although those actions brought by you will likely be prosecuted by the Chapter 7 Trustee, if he or she seeks to do so.
- The creation, perfection, or enforcement of any liens against your property. This halts any placing of liens on your property arising from judgements entered against you.
- Any acts against property of your estate, such as foreclosures, garnishments, levies, or reposessions, to give a few examples.
As with any legal concept, there are exceptions to this general rule. Examples of activities NOT prevented by the automatic stay include:
- Criminal actions against you, such as traffic tickets.
- Certain actions in family court.
- Certain actions by the Internal Revenue Service that do not involve a levy or a garnishment (such as an audit, assessment, or similar actions).
The automatic stay is not a permanent feature. Once you have received your discharge in a Chapter 7 or Chapter 13 bankruptcy, the automatic stay will be terminated automatically. Similarly, if your bankruptcy is dismissed without receiving a discharge, the automatic stay will be lifted automatically.
Creditors have the ability to petition the court for relief from the automatic stay. This usually occurs with respect to real property, where the debtor is not paying his mortgage, what is called "adequate protection payments." In most of these cases, there is no equity in the property, and oftentimes the property is not a primary residence (although I have seen creditors seek stay relief against the primary residence once or twice). If stay relief is granted, the creditor may proceed to assert its rights against the collateral, up to and including selling the property at a foreclosure sale.
In an instance where the debtor is making his monthly mortgage payments, a creditor may also obtain relief from the automatic stay where there is no equity in the property and retaining the property is not necessary to effectively reorganize under a Chapter 11. As you can imagine, this argument does not come up in Chapter 7 cases, as the intent is not to reorganize but to liquidate. It is less clear whether this section applies to Chapter 12 or 13 reorganization cases.
To sum up, the bankruptcy court protects you from your creditors by virtue of the automatic stay. It is important that you know what you do not have to worry about while the process is ongoing.
We are here to help. Call us today at 908-872-6590.