The Power of the Automatic Stay

Upon filing for bankruptcy, the “automatic stay” requires most creditors and bill collectors to cease all collection activity on debts owed to them prior to the date the bankruptcy case has been filed. Prohibited collection activity includes phone calls, written correspondence, lawsuits, garnishments and levies among others. After the bankruptcy filing, creditors cannot threaten you with legal action or repossess your property without first obtaining court approval. The powers of the automatic stay are broad and sweeping. The goal is to provide immediate relief to a financially strapped debtor, allowing him or her to have some breathing room from harassing collection activity.

To learn more and get advice on the Automatic Stay, connect with San Diego bankruptcy attorney Jeffrey Larkin who is an experienced and knowledgeable bankruptcy lawyer at 877-256-3946.

Foreclosure: A home in foreclosure for which a sale date has been set can be stopped by the automatic stay. The sale date must be postponed and the lender cannot foreclose until they obtain permission from the court, or until the automatic stay terminates by motion or operation of law.

Utility shut-offs: The automatic stay prevents utility companies from turning off your electricity, and can demand they be turned back on if they were already shut off. However, utility companies can request a deposit after the bankruptcy case has been filed. The deposit amount usually equals an amount close to the outstanding balance at the time the bankruptcy case was filed. If the deposit is not paid and subsequent payments timely made, the utility companies can once again turn off heat and electricity.

Repossession: The automatic stay prevents your vehicle from being repossessed. Debtors are required to comply with certain reaffirmation requirements if they want to keep the vehicle. If a reaffirmation agreement is not signed and filed within 30 days of the Meeting of Creditors, the automatic stay terminates and the asset is subject to repossession. This rule does not apply to consumer debt secured by real estate that is the debtor’s primary residence. In this instance, the lender must file a motion for relief from the automatic stay or wait for discharge to foreclose on the collateral.

Lawsuits/Garnishments: Any wage garnishments and pending lawsuits must be stopped immediately upon the filing of a bankruptcy case so your income remains protected. If the underlying debt is a debt that is non-dischargeable under bankruptcy law, the lawsuit or garnishment can resume upon discharge of the case.

SSI/Food Stamps/Public Benefit Over Payments: Public agencies in charge of administering food stamps or paying out other entitlement benefits sometimes make mistakes by the way of over payments. Normally, any over payment is usually collected by reducing future benefits until the amount is recouped, but once you file for bankruptcy, their ability to do so is eliminated. The over payment is a dischargeable debt provided it wasn’t obtained by fraudulent means.

Tax Levies: For a limited period of time after filing for bankruptcy protection, the automatic stay prevents the IRS from levying assets in order to satisfy delinquent tax debts. Back taxes may or may not be discharged upon conclusion of the case depending on whether they meet the necessary requirements to discharge back taxes.