Definition
An automatic stay is a statutory injunction that halts actions by creditors to collect debts from a debtor who has declared bankruptcy. The stay is automatic; it takes effect immediately upon the filing of a bankruptcy petition under Title 11 of the United States Code. It is designed to provide the debtor with a breathing spell from debt collection efforts and to allow for an orderly distribution of the debtor’s assets in accordance with bankruptcy laws.
Examples
- Creditors Halting Collection Calls: Upon filing for bankruptcy, any creditor attempting to collect debt via phone calls must cease immediately.
- Stopping a Foreclosure: If a homeowner files for bankruptcy, the foreclosure process on the home is paused.
- Reversing Wage Garnishments: If a debtor’s wages are being garnished, the automatic stay requires the garnishment to stop.
- Lawsuits Paused: Any legal actions against the debtor, such as collection lawsuits, will be put on hold.
FAQs
What actions are halted by the automatic stay?
The automatic stay halts various actions including demands for payment, lawsuits, foreclosures, repossessions, utility disconnections, and wage garnishments.
Can the automatic stay be lifted?
Yes, creditors can petition the bankruptcy court to lift the automatic stay if they can show sufficient cause, such as the property involved is not necessary for the debtor’s reorganization.
Does the automatic stay apply to all types of bankruptcy?
Yes, automatic stays apply in all bankruptcy filings, including Chapter 7, Chapter 11, Chapter 12, and Chapter 13 cases.
Are there any exceptions to the automatic stay?
Yes, certain actions are exempt from the automatic stay, such as criminal proceedings against the debtor, collection of domestic support obligations, and certain actions by governmental units to enforce their regulatory power.
What happens if a creditor violates the automatic stay?
A creditor that willfully violates the automatic stay may be required to pay damages, including attorney fees, and possibly punitive damages to the debtor.
- Bankruptcy Petition: The formal request for the protection of the federal bankruptcy laws.
- Creditor: An entity or person who is owed money or claims against a debtor’s property.
- Debtor: The person or entity that owes money and has filed for bankruptcy protection.
- Discharge: The release of a debtor from personal liability for certain dischargeable debts.
- Trustee: A person appointed to manage the debtor’s estate during bankruptcy proceedings.
Online References
Suggested Books for Further Studies
- “Bankruptcy and Debtor/Creditor: Examples and Explanations” by Brian A. Blum
- “Principles of Bankruptcy Law” by David G. Epstein, Steve H. Nickles, and James Joseph White
- “Bankruptcy and Article 9: Statutory Supplement” by Douglas G. Baird and Thomas H. Jackson
Fundamentals of Automatic Stay: Bankruptcy Law Basics Quiz
### What is an automatic stay?
- [ ] A form of payment to creditors.
- [ ] Permission to continue debt collection.
- [x] A halt to collection activities upon bankruptcy filing.
- [ ] A denial of bankruptcy protection.
> **Explanation:** An automatic stay is a halt to collection activities, including lawsuits and foreclosures, immediately upon filing a bankruptcy petition.
### Which action is not halted by an automatic stay?
- [ ] Debt collection calls
- [ ] Wage garnishments
- [ ] Foreclosures
- [x] Criminal proceedings
> **Explanation:** The automatic stay does not halt criminal proceedings against the debtor.
### How does the automatic stay affect foreclosures?
- [x] It pauses all foreclosure actions.
- [ ] It continues the foreclosure process.
- [ ] It finalizes the foreclosure.
- [ ] It has no effect on foreclosures.
> **Explanation:** The automatic stay pauses all foreclosure actions, giving the debtor temporary relief.
### Can a creditor continue with collections if they petition the court?
- [x] Yes, if the court lifts the stay.
- [ ] No, collections are completely halted.
- [ ] Only if the debtor consents.
- [ ] Only for secured debts.
> **Explanation:** Creditors can petition the court to lift the automatic stay if they can show cause, allowing them to continue with collections.
### What is one purpose of the automatic stay?
- [ ] To increase debt collection efforts.
- [x] To provide the debtor with a breathing spell.
- [ ] To finalize the debt settlement.
- [ ] To increase creditor payments.
> **Explanation:** The automatic stay is designed to provide the debtor with a breathing spell from collection efforts.
### Are domestic support obligations halted by the automatic stay?
- [ ] Yes, all support obligations are halted.
- [x] No, they are exempt from the stay.
- [ ] No, but they are reduced.
- [ ] Yes, but must be resumed after the stay is lifted.
> **Explanation:** Domestic support obligations are exempt from the automatic stay and remain enforceable.
### Who can request the lifting of an automatic stay?
- [x] Creditors
- [ ] Only the debtor
- [ ] The bankruptcy trustee
- [ ] Any interested party
> **Explanation:** Creditors can request the court to lift the automatic stay by showing sufficient cause.
### What might a creditor be required to pay if they violate the automatic stay?
- [ ] Nothing, as stays are not enforceable.
- [ ] Only a small fee.
- [x] Damages, including attorney fees.
- [ ] Just send an apology letter.
> **Explanation:** Creditors that willfully violate the automatic stay may be required to pay damages, including attorney fees, and possibly punitive damages.
### Does the automatic stay apply immediately upon filing a bankruptcy petition?
- [x] Yes, it is automatic upon filing.
- [ ] No, it takes several days to apply.
- [ ] Only after court approval.
- [ ] Only if requested by the debtor.
> **Explanation:** The automatic stay applies immediately upon filing a bankruptcy petition, halting all collection actions.
### Which bankruptcy chapters include the automatic stay?
- [ ] Only Chapter 7
- [ ] Only Chapter 13
- [x] All chapters (7, 11, 12, 13)
- [ ] Only Chapter 11
> **Explanation:** The automatic stay is a provision that applies to all chapters of bankruptcy filings, including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
Thank you for exploring the concept of the automatic stay in bankruptcy law with us. Continue your studies and strive for mastery in this critical area of financial regulation!
