Does A Bankruptcy Automatic Stay Protect Me From Creditors?

When a person files for bankruptcy, the court has a motive to provide an equal distribution among creditors that are similarly situated. For this reason, there is a procedure to protect the debtor from the pillaging of creditors upon the initial filing for bankruptcy—the protection granted is an automatic stay and takes effect immediately. When an individual files for bankruptcy, an automatic stay comes into effect immediately without the need for a court order to do so. The main objective of providing an automatic stay is to assure equality of distribution by preventing one creditor from seizing assets before another and puts all assets on an equal playing field.

This article will dig into the meaning of an Automatic Stay in bankruptcy filings, its potential benefits to the debtor, and its exceptions.

What is an Automatic Stay?

An automatic stay occurs simultaneously with the bankruptcy filing. The automatic stay halts the continuation of civil lawsuits against the debtor and generally prevents creditors from beginning collection actions. For this reason, an individual filing for bankruptcy can benefit from filing if they are at risk of eviction, foreclosure, or potentially losing a portion of their paycheck from wage garnishment, among other situations. The automatic stay provides some breathing room for the debtor, but it also puts all similarly situated creditors on equal grounds.

How can an Automatic Stay Help you?

When considering if an automatic stay would benefit your position, consider the following situations, and see if they apply to you. If you are behind on your utilities, on verge of foreclosure or eviction, filing for bankruptcy may provide temporary relief from creditors because of the automatic stay provided.

If you have not paid your utilities and cannot make the payment, the automatic stay will prevent the utility providers from disconnecting your service for at least 20 days. However, you may have to pay a deposit to the utility company to ensure the continuation of service. Additionally, if you are possibly facing foreclosure, the automatic stay will prevent the proceeding from continuing. The outcome of foreclosure will depend on the type of bankruptcy you are filing. Similarly, if you are on the verge of facing eviction, an automatic stay provides temporary relief. Generally, an automatic stay with regards to eviction will only provide a remedy for a few days, or a week, because your landlord has various reasons to ask a court to lift the stay and allow eviction.

So, there are exceptions. What does the Automatic Stay not prevent?

While the automatic stay can provide relief in certain areas, there are specific situations in which an automatic stay does not provide relief. Protection from eviction depends on when your landlord began eviction. Additionally, the IRS can commence criminal action or proceedings against the debtor, audit to determine tax liability, and intercept certain tax refunds for the purpose of settling them off against past-due child support. Further, the police or government entities are not affected by pursuing criminal proceedings.

For instance, eviction by your landlord where the lease has been fully terminated before the bankruptcy filing is not affected by an automatic stay. If your landlord filed a judgment for eviction against you before the bankruptcy filing, then the landlord has the right to continue with eviction proceedings and an automatic stay will not provide protection. Additionally, Actions by taxing authorities to conduct tax audits are not protected. The IRS has the right to proceed with an audit, issue penalties, and assess tax deficiency; however, it cannot issue a tax lien or seize property to rectify debts owed to the IRS. Similarly, a government entity has the right to enforce its policy and regulatory power against an individual filing for bankruptcy. This is possibly the broadest way to overcome an automatic stay because a criminal proceeding will continue, without interruption, and you will be required to pay applicable penalties or fines and face punishment.

If you are considering how filing for bankruptcy might benefit your position, we encourage you to work with a bankruptcy attorney. Complete our free evaluation form to be connected with a local bankruptcy attorney to discuss your specific situation and your best options for financial freedom moving forward.