The automatic stay is one of the main benefits of filing for bankruptcy. It provides the filer with immediate protection from their creditors, which means all collection calls have to stop, garnishments have to stop, and foreclosures can’t go forward. If the automatic stay is lifted, that means the bankruptcy filer loses all those protections.
Written by Attorney Eva Bacevice.
Updated June 23, 2022
The automatic stay is one of the main benefits of filing for bankruptcy. It provides the filer with immediate protection from their creditors, which means all collection calls, wage garnishments, and foreclosures must stop. This article will discuss how the automatic stay works, how it fits in the greater picture of Chapter 7 bankruptcy relief, what can cause the automatic stay to end, and what to expect once that happens.
How Does the Automatic Stay Work?
The automatic stay essentially grants you some relief from collections actions while your bankruptcy case is pending. The Bankruptcy Code grants automatic stay protection to all bankruptcy filers. This protection begins automatically at the precise moment you file your case.
For proof of the exact moment it begins, look for the court’s time stamp on your bankruptcy petition. Also, at the point of filing, a notice is sent out to all of your creditors that you have filed a bankruptcy proceeding. This is why you must include a creditor matrix with your filing.
This notice requires creditors and debt collectors to stop any collection efforts. This includes collection calls, wage garnishment, and foreclosure proceedings. There may be a slight lag between the official time stamp and the termination of collection activities since creditors receive notice by mail. But ifa creditor continues to pursue collection after being notified of your bankruptcy filing — which can be as simple as you telling them about it — the bankruptcy court can and will sanction the creditor or debt collector.
The Automatic Stay Is the First Step Toward Lasting Debt Relief
The automatic stay gives you some immediate relief before your discharge is entered. The discharge order is granted near the end of a bankruptcy case. It’s when you’re officially absolved of your debts. In Chapter 7 bankruptcy, you’ll walk away from all of your unsecured debts, like medical bills and any balance on your credit cards. But this may not be your total debt because certain debts, like child support, will survive bankruptcy.
How Long Does the Automatic Stay Remain in Effect?
Although the automatic stay provides immediate relief, it is temporary. The automatic stay generally remains in place until the discharge is entered. Once that happens, you’re no longer responsible for the unsecured debts incurred before your Chapter 7 was filed. The permanent protection from creditors provided by the discharge is much stronger than the automatic stay.
Note that there are some exceptions to this general rule for people who file multiple bankruptcy cases. We discuss this more below.
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What Is a Motion for Relief From the Automatic Stay?
A motion for relief from the automatic stay is a request creditors make to the court to take certain collection actions against the bankruptcy filer. It’s also called a stay reliefmotion. A secured or unsecured creditor can submit a stay relief motion to the bankruptcy court.
Secured Creditors and Stay Relief Motions
Secured creditors are the most likely to file these motions. Common examples of secured creditors in bankruptcy cases are mortgage lenders and car loan lenders. These lenders have a security interest in the property they’ve loaned you money for. This property is also called collateral. The collateral acts as security for the loan because the creditor can take it back if you are not making payments as agreed.
Remember, filing for Chapter 7 allows you to walk away from your unsecured debts. But it doesn’t offer permanent relief or a repayment plan (like in a Chapter 13 bankruptcy) for a secured debt if you’re behind. A creditor can file this motion to ask the court to remove the protection of the automatic stay so they can resume collection efforts and take back the property securing the debt.
So, if you file Chapter 7 and you’re behind on your mortgage payments, your mortgage lender can file a motion asking the court to allow them to resume foreclosure proceedings. The court will likely grant the request because the creditor is entitled to move forward.
If, however, you’re current on your mortgage payment when you file Chapter 7 and you don’t fall behind during the case, the creditor is unlikely to file a motion for relief from the automatic stay. And even if they did, the court likely wouldn’t grant it, because the creditor isn’t experiencing any harm.
Responding to a Motion for Relief From the Automatic Stay
When a creditor files a motion for relief from the automatic stay in a bankruptcy, they'll send a copy to you and your attorney after submitting it to the bankruptcy court. You have 14 days to respond to the motion. If you don’t file a response in that time period, the court will grant the motion by default, since there was no objection. You might choose not to respond to a motion for relief if you’re planning to surrender the collateral as part of your bankruptcy filing anyway.
If you decide to surrender your home in bankruptcy, the creditor can resume foreclosure proceedings once the order has been granted. But if you want to keep your home and are current on your payments, then you should respond within the objection period. The court will set a hearing date on the creditor’s motion so both parties can present evidence supporting their position. Often, the first hearing is mainly an opportunity for each side to state their case. The bankruptcy judge may ask each party to submit documentation before a final hearing.
The Stay Has Been Lifted — Now What?
Once a creditor gets a court order lifting the automatic stay, they are allowed to move forward with foreclosure or repossession of the property that secures the debt. That said, the creditor still needs to follow state law for their collection or eviction proceedings.
At this point, you may want to contact the creditor directly to come up with a mutually agreeable surrender or move-out date. You have the chance to make a plan instead of worrying about your car disappearing or your house being locked unexpectedly.
There’s an additional benefit to surrendering secured property through your bankruptcy: Any unsecured portion of the debt that you owe, such as late fees or penalties, will be wiped out with the bankruptcy discharge. If you were to surrender secured property without bankruptcy protection, you could be on the hook for a deficiency balance. This is a lose-lose scenario because you no longer have the property and you’re still paying on it.
Sometimes the Automatic Stay Lifts Automatically
As mentioned before, the automatic stay ends when the discharge is entered because it’s no longer necessary. But there are other ways for the automatic stay to end automatically without the need for the creditor to file a motion with the court. This can happen if you don’t follow through on your statement of intentions or if you have prior bankruptcy filings. It’s important to be aware of these so you’re not surprised if the creditor takes action.
The Statement of Intentions and the Automatic Stay
One of the forms you file in a Chapter 7 case is called the Statement of Intentions. On this form, you list all secured debts and choose one of four options for dealing with each. You can:
Redeem the property, which means you pay off its value.
Reaffirm the debt, which means you voluntarily take on an obligation you could otherwise walk away from in your bankruptcy, like continuing to make payments on a car loan or lease you want to keep.
Retain the property, which means you simply remain current on your payments or the creditor can repossess it.
You’ll need to carry out your stated intention within 30 days of the first scheduled date for your meeting of creditors. Otherwise, the stay will lift automatically for that debt, and the creditor can proceed with collection efforts.
Additionally, if you don’t carry out your intent by entering into a reaffirmation agreement or filing a motion to redeem the debt for a vehicle, it can be legally repossessed 45 days after the first scheduled meeting date.
Prior Bankruptcy Filings and the Automatic Stay
Yes, prior bankruptcies will impact the automatic stay. If you’ve filed a bankruptcy case within the last year, the automatic stay will only be imposed for 30 days in your current case. If you want to retain the protection of the automatic stay for the entire period of your bankruptcy, you (or your bankruptcy lawyer) will need to file a Motion to Extend the Automatic Stay within those 30 days to avoid risk of unprotection.
If you’ve filed two or more bankruptcies within the last year, you won’t get the benefit of an automatic stay unless the court grants a Motion to Impose the Automatic Stay. You (or your bankruptcy lawyer) must file this motion as soon as you file your case. In either situation, you may want to consult with a bankruptcy attorney for legal advice before filing a new case.
The automatic stay is often a motivating factor for someone to file bankruptcy because it offers immediate protection from creditors. However, in a Chapter 7 bankruptcy case, a creditor can ask the court to lift the automatic stay before a discharge is entered if you are behind on payments for a secured debt, like a car loan or mortgage. You do have the option to state your intentions for dealing with each secured debt. But if you don’t follow up on your intentions, the stay will lift automatically and creditors will resume collection efforts.