What is the Automatic Stay in a Bankruptcy Case?
Thousands of individuals and businesses across the country seek the protection of the bankruptcy courts each year. For one reason or another, these persons and entities became ensnared in a situation in which they owed more to their debtors than their limited resources could handle. Rather than have property seized and sold and/or wages garnished, they turned to bankruptcy as a way of dealing with their creditors. But what good would bankruptcy be if their creditors could still pursue collection efforts while the debtor’s estate and property were being handled by the bankruptcy court? It is for this reason that nearly every bankruptcy filing in Michigan and across the United States results in the imposition of an “automatic stay.”
What is the “Automatic Stay”?
The “automatic stay” is a court order that is entered immediately upon the filing of a new bankruptcy petition. This order is directed to all of the debtor’s creditors and informs them that they must immediately halt all collection efforts until further order of the court. This means that all collection phone calls, letters, and lawsuits must immediately cease. Creditors who continue to collection efforts in violation of the automatic stay may be assessed fines or other penalties for violating the court’s orders.
The stay is described as “automatic” because the court enters this powerful order immediately upon the filing of the bankruptcy petition: there is no additional form or motion that the debtor needs to file in order to obtain this protection.
The Automatic Stay is Also Immediate and Can Last Indefinitely
Not only is the stay automatic but it also goes into effect immediately after the bankruptcy petition is filed. Any collection efforts that take place after the stay goes into effect are not valid. (Because it can take a few days for all creditors to be notified of the stay, it is suggested that debtors who file for bankruptcy maintain a file-stamped copy of their petition with their bankruptcy case number and provide this information upon request to creditors who may inadvertently continue collection efforts.)
The automatic stay continues in force until (1) the bankruptcy is discharged or dismissed (although if the creditor’s debt is discharged in the bankruptcy then the creditor cannot continue to pursue collection of the debt against the debtor); or (2) the creditor obtains permission of the court to continue collection of the debt (called “lifting” the stay). In the case of a creditor wanting to lift the stay, the debtor has an opportunity to be heard at a hearing and to present any evidence or argument as to why the stay should remain in place before the stay is lifted (remember, that debts discharged in chapter 7 bankruptcy do not prevent a creditor with a mortgage or property lien from repossessing said land).
The experienced Michigan bankruptcy lawyers at Van Den Heuvel Law Office can assist individuals and business entities file for bankruptcy protection under the bankruptcy code. We will work to ensure that your bankruptcy is truly the “fresh start” you need to get back on your feet. Contact us at (616) 698-0000 or through our website to discuss how filing for bankruptcy may be a wise financial decision for you.