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The automatic stay
The automatic stay immediately puts an end to the nightmare of nasty debt collectors, garnishments, law suits, foreclosure, repossession and any other attempt to collect a debt. The instant you file a bankruptcy case, the court enters an order prohibiting debt collection. You do not have to wait to go to court because it is automatic.
You should carefully list all your creditors and make sure you have up to date addresses for them when you file bankruptcy. Creditors are bound by the automatic stay regardless of whether they got notice. They are only liable for damages and attorney’s fees if they try to collect from you after getting notice. If they do not get notice and collect money from you, they have to return it even if they did not get notice. If they do get notice and you suffer because they collect from you anyway, a bankruptcy court can order them to pay you for your loss as well as paying your attorney fees and punitive damages. Therefore, the automatic stay is a powerful tool that creditors take very seriously.
The automatic stay is broader than the discharge. Some debt such as student loans and taxes can not be discharged but are covered by the automatic stay. The stay is in effect until you get a discharge and your case closes. This allows you to reorganize while the court goes through your assets or you complete a repayment plan in a Chapter 13.
Creditors can ask the bankruptcy court to “modify” the automatic stay. Most commonly this means a mortgage company or car company goes to court to continue foreclosure or repossession because you are not making payments. To maintain protection from these creditors you have to keep the property fully insured and keep making payments, either directly in a Chapter 7 or through a Chapter 13 plan. It takes at least a month for creditors to modify the automatic stay.
There are some exceptions to the automatic stay protection. Collection of some fines is not stayed. Child support collection and proceedings are not stayed. The IRS can continue a tax audit (but not collect). If you file more than one bankruptcy in a year, you have to ask the court to keep the stay in effect within a month of filing. If you file more than two bankruptcies in a year, the stay does not go into effect and you have to ask the court to impose it. This typically involves Chapter 13s that are dismissed because the debtor does not make payments, fails to go to court or neglects other duties. In these situations, you have to show the court you are filing bankruptcy more than once in good faith and not just stringing everybody along without a serious effort.
In general, the automatic stay is comprehensive and very powerful. It is a good example of how bankruptcy laws provide many rights and benefits to distressed debtors with the goal of getting people back on their feet so they can go on with dignity.