For many folks in the greater Sacramento area, the most valuable component of a bankruptcy is the automatic stay, which is usually gained immediately upon the filing of the initial bankruptcy documents. The stay stops most creditor actions against a debtor, including foreclosures, repossessions, garnishments, utility shut-offs, and, most of the time, evictions. The stay can also be effective in ending creditor collection efforts and can result in contempt or money damages and attorneys fees. Finally, the stay can simply provide some breathing room for a debtor to catch her breath and give her some time to figure out how to solve financial problems.
The Stay May Also Protect Friends And Relatives
Chapter 13 bankruptcies have a special additional stay called the “codebtor stay.” This special provision provides protection for those that are codebtors with the filing debtor. This may be an important reason to file because it can provide some relief for friends or relatives of the person filing bankruptcy.
The Duration of the Stay
The duration of the stay depends on the circumstances of the case. Unless the court lifts the stay, the stay lasts for the duration of the case, usually three to six months in a no asset Chapter 7 case and up to five years in a Chapter 13 case.
However, if a bankruptcy case was dismissed within a year of a filing a new petition, the stay terminates thirty days after filing. The shortened stay can be extended by the court if the debtor can show the case was filed in good faith. If a debtor has two or more cases dismissed within the year prior to filing a petition, the stay is no longer automatic and court approval is required to impose the protections of the stay. The law puts these rules in place to make sure people aren’t abusing the system.
The Stay Even Applies to the IRS
Even the IRS is not allowed to take collection certain actions after the petition has been filed. It may still be able to continue an audit, but it must put a stop to an existing collection action and must not begin a new collection action without court approval.
Consequences if Creditors Violate the Stay
Some creditors violate the stay accidentally. If that is the case, they must stop collection actions immediately upon learning of the bankruptcy. However, a great many violations are done on purpose. If such a violation is “willful”, the creditor might be in for some substantial penalties. Not only can a bankruptcy filer recover money or property taken wrongfully, but may also be entitled to attorney fees and punitive damages.
The Stay Only Works if You Use It
Like an umbrella, the stay only protects you if you use it right. Don’t open the umbrella when it rains, and you’re all wet. If creditors violate the stay and you don’t inform your attorney, there may be little to no actual consequences. The automatic stay can be a powerful provision, but often only when you use it. Remember the power of the automatic stay!