This is the part of the real power of the bankruptcy system. Immediately and automatically upon filing any chapter of bankruptcy it is as if a legal force field goes up around you. You are under federal legal protection and now the creditors cannot violate that protection. All foreclosures, garnishments, repossession attempts, evictions*, and collection lawsuits--- they all come to an immediate halt once you notify the creditor of the stay. Our office notifies courts, foreclosure trustees, payroll departments and others affected by the automatic stay as soon as we file your case. Credit card and most other lawsuits cannot go to judgment. Foreclosure sales are canceled or continued. You start getting all your pay check again if you’ve been garnished on the very next pay check.
The reason that this powerful feature of bankruptcy law exists is that bankruptcy takes care of your financial situation holistically. It is not this part here and that part there, but the entire financial enchilada. Moreover, all creditors are put on a level playing field for whatever assets there may be in a case (in a Chapter 7 it is unusual that there are assets, while it is usual creditors get something in a Chapter 13). The automatic stay exists because it is impossible to proceed to dealing with all your creditors on a level playing field while each individual creditor is pursuing its own collection remedies.
Therefore, it is illegal for a creditor to even contact you to try and collect a debt after notice of your filed bankruptcy. There are penalties for knowingly and willfully violating the automatic stay. While we’re preparing the case we use the Federal Fair Debt Collection Practice Act (FFDCPA) to keep the creditors off your back prior to the initiation of the automatic stay, but that is harder to enforce. Enforcing the automatic stay is a mere motion to the Bankruptcy Court.
Thus, for many, the relief upon filing the bankruptcy case is immediate and significant. Once the case is processed the temporary injunction of the automatic stay is replaced by the permanent injunction of the discharge order.
If you’ve stayed a foreclosure in your bankruptcy and you filed a Chapter 7 case, the lender may ask the Court for relief from stay if there is not a lot or no equity in your house. They can get it as soon as two months after you file the case. However, if you were in foreclosure and you filed a Chapter 13 case and you are current on your house payments after you filed the case, the lender cannot get relief from stay. The stay in very broad, but a creditor can, if there is good cause, request that the court modify the stay as to them for their particular reason.
Not everything is stayed. Lawsuits involving child support or spousal support are not stayed and can be pursued despite your bankruptcy filing. Actions by governmental units to enforce a police power are not stayed. If you’ve filed more than one bankruptcy the stay is either limited to 30 days on the second case or does not go into effect on your third subsequent filings within one year. It can only be reinstated upon application to the bankruptcy judge.
But while the automatic stay is selective, do not underestimate its power.
It is the real mojo in the bankruptcy process. It is instrumental in helping
you take back the power from your creditors.
The other real power of the bankruptcy is the discharge. That is discussed in the next section under “Bankruptcy Basics.”