The Automatic Stay
The automatic stay takes effect immediately once a bankruptcy is filed. The stay is an injunction against any creditor making an attempt to collect a debt. The automatic stay immediately prohibits foreclosures, repossessions, garnishments, phone calls, the perfection of liens – all attempts to collect a debt.
If a creditor ignores the automatic stay and tries to collect a debt anyway, the creditor can be sued for actual damages, attorney’s fees, and punitive sanctions. The creditor has to have had notice of the bankruptcy to be sued. If the creditor collects a debt by mistake, by garnishment or cashing a check for instance, the creditor has to pay the money back but can not be sued. Because of this important notice provision, you should make sure you have the most current, correct address for all your creditors when you file bankruptcy.
A creditor can modify the automatic stay “for cause”. A successful creditor will then be free to collect a debt. Usually, that means a car company can repossess a car or a mortgage company can continue a foreclosure. The creditor has to file a motion to modify the automatic stay and it will take at least a month to hear that motion. Usually the secured creditor has to allege that they are not receiving “adequate protection”. Unsecured creditors, such as credit cards or medical bills, generally do not file motions to modify the automatic stay. Adequate protection means the creditor is receiving payments – contractual payments in a Chapter 7 or, in the case of a Chapter 13, payments through the repayment plan. The property should be insured as well. In a Chapter 7, a debtor also has to file a “statement of intent” specifying whether they intend to keep property by continuing to pay a secured debt for that property within 30 days of filing their case. If they do not, the creditor can modify the automatic stay.
If you file a second bankruptcy within a year, the automatic stay is extinguished in 30 days unless you can show the second filing was in good faith. If you file more than two, there is no automatic stay imposed at all until you show you filed the case in good faith. A few activities, such as criminal prosecutions, child support cases and IRS audits are not stopped by the automatic stay.
With any questions about an automatic stay, contact your trusted bankruptcy lawyers in Tacoma, Washington.