Filing of any kind of bankruptcy triggers automatic stay. The stay prohibits creditors and collection agencies from taking any action to collect most kinds of debts, unless the law or the bankruptcy court says they can. It provides a debtor necessary breathing space to enable him/her to regroup financially and take advantage of the fresh start created by bankruptcy.
Automatic stay being a fundamental element of bankruptcy law-every creditor or claimant of a debtor needs to be aware of how the stay functions and when it applies. Generally, the following actions are prohibited by automatic stay protections once a debtor files bankruptcy:
- contacting the debtor to demand payment
- requesting the debtor to provide security for existing unsecured or under secured debts to the creditor
- initiating a suit against the debtor
- continuing to prosecute pending litigation against a debtor
- attempting to enforce a judgment against the debtor
- advancing judgment enforcement activities already under way
- directing a sheriff to continue wage garnishment proceedings
- conducting a scheduled execution sale
- perfecting a lien against a debtor’s estate property
- repossessing collateral that is estate property
- starting non-judicial or judicial foreclosure against estate property
- continuing to advance non-judicial or judicial foreclosure against estate property
Anyone trying to get collect credit card debts, medical debts, attorneys’ fees, debts arising from breach of contract, or legal judgments against the debtor (other than for child support and alimony) must cease all collection activities after filing of bankruptcy case. They cannot file a lawsuit or proceed with a pending lawsuit against the debtor, record liens against the debtor’s property, report the debt to a credit reporting bureau, or seize property or income, such as money in a bank account or paycheck.
In case of debts associated with criminal proceedings, the debt component will be put on hold while the bankruptcy is pending and the criminal component will be allowed to continue. For example, if a debtor is convicted of writing a bad check and is sentenced to community service and ordered to pay a fine, then obligation to do community service will not be stopped by the automatic stay, obligation to pay the fine will be stayed.
Foreclosures are initially stayed by bankruptcy filing. However, the law does not allow the debtor to prevent a foreclosure by filing serial bankruptcies.
Generally speaking, violations of an automatic stay can result in serious consequences.