Saturday, February 26, 2011

Understanding the Importance of the Automatic Stay

At the VC Law Group, quite often clients will come in with at least one of the following debt-related issues:

- They are involved in a lawsuit relating to debt that they owe
- Their house is in foreclosure
- Their wages are being garnished
- They are receiving harassing phone calls from debt collectors

When I hear this, I tell our clients that one of the most powerful tools that comes along with the filing of a bankruptcy petition is the Automatic Stay that goes into effect immediately upon the filing. 
The Automatic Stay is a type of injunction which prevents all of a debtor’s creditors from making any attempts to collect on any debts that were owed prior to the filing of the bankruptcy case.  What that means is that if you are being sued for a debt that you owe, that lawsuit is put on hold and cannot proceed absent an order from the Bankruptcy Court.  In addition, without a Bankruptcy Court order, a foreclosure sale cannot proceed, your wages cannot be garnished, and your debt collectors must refrain from calling you and asking you to make good on your debts.

There are, however, certain instances when the automatic stay can expire or not occur at all.  For instance, if a debtor files a petition but had a bankruptcy case dismissed within a year prior to the filing of the new case, the automatic stay will expire thirty (30) days after the case was filed.  The debtor may, however, file a motion with the Court to extend the automatic stay in that instance.  In instances where the debtor had two or more cases that were dismissed within the year prior the filing of the new case, the automatic stay does not go into effect at all, though the debtor can file a motion with the Court to attempt to put the stay into effect.  Finally, creditors may file a motion for relief from the automatic stay.  The Court may give a particular creditor relief from the automatic stay if the creditor can show that its interests are not adequately protected.  These motions can be hotly contested at times, and we’ve had experience representing both debtor and creditor interests in these instances.  There are also other certain instances where the stay will expire because of a failure of a debtor to file required papers.

The statutory authority for the automatic stay is found in 11 U.S.C. §362.