One of the most important benefits of filing for bankruptcy is a feature called “automatic stay.” It prevents creditors from collecting (or even attempting to collect) debts owed by the person declaring bankruptcy while the case is ongoing.
Timeline and Exceptions
In most cases, the ban on creditor actions goes into effect when someone files for bankruptcy, hence the term “automatic” in automatic stay. However, there are some reasons that may lead to a delay or lifting of the stay, including:
- If there is no equity in the encumbered property
- If the stay is not necessary for reorganization
- If there is evidence of bad faith or lack of sufficient protective measures over the encumbered property
- If the court grants a creditor’s request to lift the stay
- If there are other proceedings that need to take place
- If the court determines that a person is a repeat bankruptcy filer
If you have a debt owed on an asset, such as a home, but the value of the home has dropped below what you owe, there is no equity in the property. A creditor may be able to prove that you did not maintain the home and caused the decline in value.
If creditors can prove that you can reorganize your finances without the need for the stay, the bankruptcy court can lift it. The automatic stay can also be lifted to allow for another legal proceeding, such as divorce proceedings.
Repeat bankruptcy filers are debtors who file for bankruptcy repeatedly over a short period. Unfortunately, there is no predefined definition of what constitutes a short period. The decision is made based on the case’s circumstances, usually by the bankruptcy judge or trustee.
Be sure to maintain insurance coverage and file for bankruptcy in a timely manner to avoid losing full protection from the stay.
Termination of the Automatic Stay
The duration of the automatic stay also depends on whether it applies to collection activity against the debtor or against the debtor’s property.
If collection is occurring against the debtor, the automatic stay generally continues until the debtor receives a discharge authorization or the discharge is denied, or the case is dismissed. At that time, creditors can resume collection activities on debts that have not been discharged. For discharged debts, a permanent discharge injunction replaces the temporary automatic stay.
Even when you file for bankruptcy, the creditor has the right to receive payment or to recover collateral. When you file a Chapter 7 bankruptcy case, among the many documents you submit is a statement of intent that informs the court and your creditors whether you will surrender the property, redeem the collateral, or reaffirm the debt.
It is important to note that if you file for bankruptcy on April 1 and continue to use a credit card, the stay only covers debts incurred before April 1. You will remain responsible for debts incurred after April 1.
Individuals intending to retain property must either redeem or reaffirm within 30 days of filing the bankruptcy case. If you fail to file the statement in a timely manner, the stay automatically lifts the next day (31 days after the original bankruptcy filing). The creditor is then free to proceed with repossession or any other legal collection activity against that property.
Creditor Violations of the Stay
If a creditor or collector continues collection efforts while you are under the protection of the automatic stay, it is considered a violation of bankruptcy law. If a violation occurs and it is found to harm the bankruptcy filer, the creditor or collector may be required to pay compensatory damages or reimburse attorney fees or punitive damages.
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Sometimes, creditors violate the stay – usually because they are unaware of the bankruptcy filing.
Remember to consult legal experts such as a bankruptcy attorney. Filing for bankruptcy is an important decision that affects your financial, personal life, and future.
Source: https://www.thebalancemoney.com/how-long-does-the-automatic-stay-last-316168
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