One of the most oppressive conditions of being deep financial trouble is the seemingly never-ending stream of collection attempts, ranging from insulting letters to harassing phone calls from bill collectors. Many Floridians who are considering bankruptcy as a means of escaping this unhappy situation do not realize that the United States Bankruptcy Code contains a provision that can bring a stop to ALL collection activity as soon as the petition for relief is filed. This provision creates what is call the” automatic stay.” Once in effect, the effect of the automatic stay can indeed seem like the occurrence of a miracle.
The basics of the automatic stay
A stay is a court order issued to certain parties directing them to cease the activities described in the stay. When the clerk of bankruptcy court receives either a Chapter 7 or a Chapter 13 petition, the clerk immediately prepares and mails to all creditors identified in the bankruptcy petition a copy of a stay order that prevents them from continuing to pursue various collection activities against the petitioner. The stayed activities include judicial proceedings commenced before the petition was filed, creation or enforcement of liens against the debtor’s property, taking possession of the debtor’s property, any act intended to collect, assess, or recover a claim against the debtor if the claim arose before the commencement of the bankruptcy case. The automatic stay also stops an action to foreclose a mortgage on real estate owned by the debtor.
Actions exempt from the automatic stay
Certain actions are not affected by the automatic stay. These actions include:
Civil actions to establish paternity
Actions concerning child custody or visitation
For dissolution of a marriage
Actions regarding domestic violence
Collection of a domestic support obligation
The reporting of overdue support owed by a debtor who is a parent
The code section that creates the automatic stay also lists other exceptions that may not apply to most debtors.
How long the stay last?
The stay expires on the happening of one of three events:
The property is no longer part of the bankruptcy estate
The case is closed or dismissed
The time that a discharge is either granted or denied
Individual creditors can be granted relief from the stay on any of the grounds specified in the Code.
The exact effect of the say may vary from case to case. Anyone who is thinking about filing a bankruptcy petition to take advantage of the automatic stay may wish to consult an experienced bankruptcy attorney for advice on how the stay will affect creditors’ claims.