What is the automatic stay in bankruptcy?

What the stay stops

Under 11 U.S.C. § 362, filing a petition in any chapter automatically stops creditors from:

• Starting or continuing lawsuits to collect debts.
• Enforcing judgments, including wage garnishments and bank levies.
• Foreclosing on a home or repossessing a car.
• Calling, writing or emailing to demand payment.
• Creating or enforcing liens on the debtor's property.
• Setting off debts against the debtor's deposits, with some exceptions.
• Most evictions that have not reached judgment, and utility shutoffs for at least 20 days.

It takes effect immediately on filing — no court hearing or signed order is needed. Creditors are notified by the court, but debtors often give notice themselves, for example by faxing or emailing the case number to a lender scheduled to hold a foreclosure sale that day.

What the stay does not stop

• Criminal cases against the debtor.
• Actions to establish paternity, or to set or collect child support and alimony from exempt income.
• Most divorce proceedings, except the division of property that is part of the bankruptcy estate.
• Tax audits and tax assessments (though collection is generally stayed).
• Evictions where the landlord already obtained a judgment before filing, subject to limited exceptions, or evictions based on endangering the property or illegal drug use.
• Government enforcement of police and regulatory powers.

Repeat filers

To prevent abuse, the stay is limited for people who file repeatedly. If a debtor had one case dismissed within the previous year, the stay lasts only 30 days unless the court extends it on a motion filed quickly. With two or more dismissed cases in the past year, no stay arises unless the court orders one. Courts can also grant lenders “in rem” relief that binds a property for two years when bankruptcy filings are used to delay foreclosure.

Relief from the stay

A creditor can ask the bankruptcy judge to lift the stay. Common reasons are that the debtor is not making payments on a secured loan and the creditor's interest is not adequately protected, or that the debtor has no equity in the property and it is not needed for a reorganization. Mortgage lenders often file these motions in Chapter 7 cases where the debtor is behind. Hearings are usually held within 30 days, and the stay terminates automatically if the court does not act in time.

Watch

How long the stay lasts

For most purposes, until the case is closed or dismissed, or until the debtor receives a discharge. At discharge, the stay is replaced by the discharge injunction, a permanent order barring collection of discharged debts.

Violations

Actions taken in violation of the stay are generally void. An individual injured by a willful violation — for example, a creditor who keeps garnishing wages after being told of the filing — can recover actual damages, including costs and attorney fees, and in appropriate cases punitive damages. Debtors should document every contact after filing: dates, names and what was said or taken.

The co-debtor stay in Chapter 13

Chapter 13 adds a separate stay protecting co-signers of the debtor's consumer debts, such as a parent who co-signed a car loan, while the plan is in effect, unless the court lifts it.

Practical uses

• Stopping a foreclosure sale scheduled for the next day.
• Ending a wage garnishment immediately.
• Getting a repossessed car back in some cases.
• Halting collection lawsuits and harassing calls.
• Preventing a utility disconnection.

Getting advice

Emergency filings are possible with a short petition, followed by the full schedules within 14 days, but rushed cases are more likely to be dismissed. A bankruptcy attorney can advise whether filing will actually stop the specific action you face, especially if you have filed before.

Car repossession and the stay

If a car was repossessed shortly before filing, the lender may be required to return it in Chapter 13, and sometimes in Chapter 7, if the debtor can provide proof of insurance and adequate protection. Acting quickly matters, because once the car is sold at auction it cannot be recovered.