An automatic stay is a life-saver that can prevent financial ruin after you file bankruptcy. This protective function goes into action instantly when personal bankruptcy proceedings of any kind begin. It blocks civil lawsuits and most collection activity, and may even help you avoid eviction from your home.
As such, it’s critically important — but few people understand it. To learn more about this aspect of bankruptcy before beginning that legal odyssey, read on.
What Can the Automatic Stay Prevent?
While it can’t stop everything, a bankruptcy stay has some surprising strengths. Among other things, it can stop (at least temporarily):
- Foreclosure on your home. A stay halts foreclosure proceedings until the mortgage holder can file a motion to lift or find a way around it. If you want to keep your house, Chapter 13 bankruptcy is best, because the court will structure a payment plan that will help you catch up with your back-payments.
- Eviction. If your landlord lacks a judgment of possession against you, in most cases the stay will temporarily stop an eviction. The owner may ask the judge to lift the stay, however, if they can convince the court you’re using illegal drugs or endangering the property.
- Garnishments. Most (but not all) wage garnishments are blocked by your automatic stay.
- Disconnected utilities. The stay will keep your power, gas, water, and telephone service on for at least 20 more days, even if the utility was on the verge of cutting you off.
What the Automatic Can’t Do
A bankruptcy stay isn’t a miracle cure. It won’t stop any of the following:
- Child support and alimony. This includes paternity suits and modification actions for child or spousal support.
- Criminal trials or investigations. A bankruptcy stay won’t block any criminal proceedings, major or minor, even those that are financially related.
- Tax audits and collections. If you owe the IRS money, you’ll still have to pay it, though a stay can temporarily stop the agency from seizing your home, property, or income.
- Pension loans. Your employer may still withhold funds from your paycheck to pay back what you’ve borrowed.
- Multiple bankruptcy filings. Automatic stays expire after 30 days if you already had a bankruptcy pending in the last year. Your trustee, the U.S. Trustee, or a creditor can, however, petition the court to maintain the stay if they can convince the court you acted in good faith with your current filing. However, if you did it to stop a motion to lift the previous stay, the court will assume bad faith — requiring an uphill battle to maintain your current stay.
Creditors Can File Motions to Lift Stays
Creditors want their money and will do all they can to get it. They can petition the court to lift the stay by filing what is called “a motion to lift.” They usually occur when there are:
- Lawsuits pending between them and you in other courts, depending on specific circumstances.
- Home foreclosure proceedings underway.
- Conflicts between tenant and landlord.
In order to win the motion for lift, the creditor has to prove that maintaining your automatic stay causes them to lose money, and lifting it will cause neither financial harm benefit nor harm to other creditors.
The relationships between bankruptcy courts and other courts can be extremely complex. So are the rules for handling and deliberating on motions to lift stays. However, one type of motion to lift that often succeeds occurs when a lawsuit involved in another court is likely to lead to non-dischargeable debt. That is, the debt can’t be written off, and will survive the bankruptcy. Therefore, the judge may as well find for the creditor and lift the stay.
Learn More About How the Automatic Stay Could Protect You From Creditors.
Bankruptcy is often a time of confusion. We have the legal knowledge to help you maintain your automatic stay until you can get back on your financial feet. Bankruptcy litigation is so complex that it pays to have an expert at your side. If you’re having trouble maintaining a bankruptcy stay in Minneapolis, putting you at risk of financial catastrophe, call Gregory J. Wald, Attorney at Law for a consultation.