Automatic Stay of Bankruptcy

Immediately upon the filing of a bankruptcy case, an “automatic stay” goes into effect which stops most collection activities against the debtor or the debtor’s property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, foreclosures, repossessions, wage garnishments, or even telephone calls demanding payment. Creditors are notified of the bankruptcy filing and the automatic stay by the bankruptcy clerk’s office.

The filing of a bankruptcy petition does not stay certain types of actions, such as criminal proceedings; paternity or child custody actions; the collection of alimony or child support; or police or regulatory actions.

As it pertains to specific property, the automatic stay continues until that property is no longer property of the debtor’s bankruptcy estate. In general, the stay continues until the case is closed, dismissed, or the debtor’s discharge is granted or denied. However, the duration of the automatic stay may be limited if the debtor has previously filed bankruptcy.

Creditors may seek to have the automatic stay terminated or modified. A creditor may request permission to act without the restraint of the stay if the creditor’s property is not being adequately protected or if the debtor does not have equity in the property and the property is not necessary for the debtor’s reorganization. In addition, a creditor may ask for relief from the stay if s/he believes the debtor’s bankruptcy was not filed in good faith.

If a creditor violates the automatic stay, the debtor may be able to recover actual damages, including costs and attorney’s fees, and punitive damages.