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What Is the Automatic Stay? How Does It Help?

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In a Nutshell

When you file bankruptcy, the automatic stay takes effect immediately. It provides important protections for bankruptcy files. The automatic stay stops all form of debt collection in addition to wage garnishment, repossession, and foreclosure.

Written by Attorney Jenni Klock Morel
Updated July 14, 2023

The automatic stay in bankruptcy is what protects filers from creditor actions while their case is pending. The debt relief afforded by a Chapter 7 bankruptcy — the discharge — isn't granted by the court until about 3–4 months after the filing date. The automatic stay makes sure that wage garnishments and repossessions or foreclosures are stopped in the meantime and give the filer immediate relief by stopping the never-ending phone calls from debt collectors. Let’s take a closer look at what the automatic stay in bankruptcy means for you.

When Does the Automatic Stay Start?

The automatic stay starts immediately after you file your bankruptcy case and get a case number. Once you have a case number from the bankruptcy court, you're protected from collection efforts, wage garnishment, eviction, foreclosure actions, and harassing collection phone calls.

This protection from collection activity is automatic. Besides filing the bankruptcy petition, there is nothing additional a filer has to do to get the protection of the automatic stay. 

What Collection Actions Does the Automatic Stay Protect Me From?

Other than some notable exceptions, discussed below, the automatic stay protects you from all collection actions, including:

  • Phone calls

  • Collection letters

  • Wage garnishments

  • Repossessions

  • Lawsuits

  • Any other collection efforts taken by a debt collector or creditor

Debt collection calls begin as soon as you fall behind on credit card bills or other payments. These calls can come in from morning to evening and can cause extreme stress on a person who can't afford to pay their bills. Filing a bankruptcy case puts an immediate stop to collection phone calls and letters. Your voicemail and mailbox will no longer be a source of stress. 

The automatic stay stops wage garnishments — money being directly taken from your paycheck — that's already happening or is about to begin. Car repossessions due to missed payments will be stopped immediately and can’t happen after a bankruptcy filing, giving you time to make up missed payments or figure out what you want to do with the vehicle. The automatic stay also puts an end to many types of lawsuits, including those for unpaid debts. So long as your bankruptcy case results in a discharge, meaning your debts are erased, a lawsuit for unpaid bills can’t move forward.

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How Do Creditors Know About the Automatic Stay?

Your creditors will find out about the automatic stay one of two ways: either you will tell them about it or they will receive notice in the mail from the bankruptcy court. However, the automatic stay protects you even before your creditors receive notice of your bankruptcy case. 

You can tell your creditors about your bankruptcy filing and give them the case number. Giving this notice verbally is enough to get them to stop collection efforts. It's important to call a creditor as soon as the bankruptcy case has been filed and a case number assigned if there is an ongoing wage garnishment, a garnishment is about to start, or there's a scheduled foreclosure. 

How Does the Notice to Creditors Work?

When you file a bankruptcy case you must provide a complete list of all your creditors — any bank, business, or person to whom you owe money. After filing, the bankruptcy court will send the Official Form 309A "Notice of Chapter 7 Bankruptcy Case - No Proof of Claim Deadline," to all of your creditors. This form alerts creditors to the automatic stay, gives them notice of the time and location of the meeting of creditors, and tells them there's likely no assets available to pay them. 

It's important that you provide a full list of every one of your creditors, and their addresses, to the bankruptcy court because the court sends the notice of your Chapter 7 bankruptcy case. This tells your creditors that they must stop collection efforts against you. Then, at the end of your bankruptcy case, the court sends your creditors a notice of bankruptcy discharge telling them they can never try to collect from you for debts from before your bankruptcy case was filed. 

Are There Any Exceptions to the Automatic Stay? 

As mentioned above, there are a number of exceptions to the automatic stay. Keep in mind, the Bankruptcy Code protecting you is the same one that applies to businesses who filed for bankruptcy protection, so a lot of these exceptions never come up in an individual’s Chapter 7 case. Let’s take a look at some of the most common exceptions that do come into play in consumer bankruptcy cases. 

The United States Bankruptcy Code lists exceptions to the automatic stay in Section 362(b). Some of the most common exemptions are for criminal proceedings against the filer and certain civil proceedings, including those establishing paternity, alimony or child support obligations, affecting child custody or visitation, and actions regarding domestic violence.

Divorce proceedings are also not affected by the automatic stay, except for the division of property between spouses. The bankruptcy automatic stay does affect the division of property during a dissolution of marriage and often results in an overall delay of the divorce proceeding. It's a good idea for people who need debt relief and are thinking about divorce or currently going through a divorce to speak to a bankruptcy lawyer or legal aid organization about how a bankruptcy filing can impact their case. 

Other exceptions to the automatic stay in personal bankruptcy proceedings involve taxes and the IRS. Tax audits, notices of tax deficiency, assessing tax debts, or demanding tax returns are not stopped by the automatic stay. 

Are There Any Other Limits to the Automatic Stay? 

Now that we’ve looked at some of the most common exceptions to the automatic stay folks have to be mindful of, let’s take a look at some of the limitations to the automatic stay. Limitations are different from exceptions because with limitations the automatic stay kicks in when the case is filed, but it ends before the discharge is entered by the court.

Creditors Can Request Relief From the Automatic Stay

The automatic stay lasts for the life of the bankruptcy case, until the discharge is either granted or denied. However, creditors can file a motion asking the bankruptcy court to lift the automatic stay.

Secured creditors hold debt that is backed by collateral, like home mortgages and car loans. If they get the automatic stay lifted, then they can take the collateral from the filer and sell it to satisfy the debt they're owed.

Secured creditors are most likely to ask for relief from the automatic stay when the filer has indicated an intention to surrender the collateral or has fallen behind on payments either prepetition (before filing for bankruptcy) or post-petition (after the bankruptcy filing). Secured creditors are motivated by protecting their assets, which means getting the property as soon as possible before something happens that diminishes its value. 

A creditor's motion to lift the automatic stay is more common in Chapter 13 bankruptcies than in Chapter 7 bankruptcies. This typically happens if the filer stops making payments, either plan payments if the creditor is being paid through the plan (like a car loan lender) or the filer falls behind on direct payments in the case of mortgages that are not being paid through the plan. If payments stop, the creditor will ask the court to lift the automatic stay so they can take possession of the collateral before its value diminishes too far below the amount of debt owed.

The bankruptcy court will notify you if any of your creditors file a motion for relief from the automatic stay. You will be given an opportunity to object to the motion if you believe you're current on payments or you've expressed your intention to keep the collateral and in good faith plan to follow through on that intention before the deadline to do so expires. 

What Are Secured Debts? How Does the Automatic Stay Work With Secured Debt?

Secured debts are secured by collateral, a piece of personal property or real estate. The most common examples of secured debts are car loans and mortgages. After filing bankruptcy, the automatic stay protects a car from repossession and a home from foreclosure until the stay is either lifted by court order, naturally ends at completion of the case, or expires during the case.

The automatic stay expires for secured debts if the bankruptcy filer doesn't do one of the following:

First, you can file your Statement of Intention form along with the rest of your bankruptcy petition to avoid missing the 30 day filing deadline and avoid expiration of the automatic stay. 

Second, if the automatic stay expires, your secured creditors can repossess your vehicle or more forward with foreclosure action just 45 days after the first meeting of creditors. Although, since Chapter 7 bankruptcy cases often last only 3 to 4 months, many creditors will wait until the bankruptcy discharge is entered and the case closed before moving forward with repossession actions. 

Multiple Bankruptcy Cases

Filing multiple bankruptcy cases in a short amount of time can harm your ability to take advantage of the automatic stay in later filings. This is part of the Bankruptcy Code. The court is concerned about bad faith and people trying to take advantage of the system. 

Sometimes bankruptcy cases are dismissed before the discharge is granted – before debts are erased. This can happen for a number of reasons. A Chapter 13 repayment plan can fail, a filer might miss a filing fee installment payment, or miss filing required documents. Any of these situations, and many others, can cause a bankruptcy judge to dismiss a case prior to discharge.

If a prior Chapter 7 case was filed but dismissed within one year prior to filing another Chapter 7 case, then the automatic stay for secured creditors lifts 30 days after the filing date. If two or more Chapter 7 bankruptcy cases were filed but dismissed within one year prior to filing another Chapter 7 case, then the automatic stay may not take effect at all. 

In such cases, the filer has 30 days to file a motion with the bankruptcy court asking for the automatic stay to take effect. To be successful, the filer has to prove to the court that the later bankruptcy case was filed in good faith as to the creditors that would be affected in the court allows the automatic stay. If the court grants the motion, it can impose limitations on the stay.

The protections of the automatic stay are some of the greatest benefits of filing for bankruptcy. If you've had a bankruptcy case dismissed in the previous year, it's best to speak to a bankruptcy attorney before filing again. You want to make sure you can get the most benefit from your bankruptcy filing.

Preventing an Eviction

The automatic stay can help a bankruptcy filer avoid being evicted, which means they won't be forced to move out of their home. Even if you're behind on your rent when you file bankruptcy, your landlord will have to immediately stop collection activity or eviction proceedings against you. If you catch up on missed rent payments quickly after filing for bankruptcy and continue to pay your rent on time, then you should be able to keep your lease and stay in your home. 

The exception is if your landlord has already gotten a court-ordered eviction or judgment of possession against you before you file for bankruptcy. In that case, the automatic stay won't stop the eviction. In cases where the landlord already has a judgment, the filer can avoid eviction if they certify to the court that state law allows them to cure, or catch up, the missed rent payments that led to the eviction. The filer will have to catch up on all payments within 30 days of filing and deposit rent that comes due during that 30 days with the bankruptcy court clerk.

Let's Summarize...

If you need a breathing spell from the constant phone calls or other collection actions because you’ve fallen behind on your payments and can’t pay your debts in full every month, filing for bankruptcy may be the best course of action for you. If you’re struggling to make ends meet but can’t afford to pay for a lawyer, see if you qualify for Upsolve’s help.

Written By:

Attorney Jenni Klock Morel


Jenni Klock Morel is a writer, nonprofit leader, and Social Justice Law Scholar. For years she practiced consumer bankruptcy law exclusively as a debtor's attorney, helping individuals and families file for Chapter 7 or 13 bankruptcy protection. Jenni left the practice of law to... read more about Attorney Jenni Klock Morel

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