The automatic stay stops attempts to collect a debt as soon as your bankruptcy is filed. The purpose of the automatic stay is to allow the debtor time to go through bankruptcy without worrying about creditors until the case is finalized and the debtor receives a discharge. The discharge permanently wipes out debt but some debt is not discharged, such as some taxes, student loans, fines, and back child support or spousal maintenance.
The automatic stay covers almost all attempts to collect a debt, even debt that cannot be discharged in the end. Some fines and child support are not covered by the automatic stay. The IRS can continue an audit but cannot collect their debt while the automatic stay is in effect. In a Chapter 13, even if the debtor cannot get a discharge because they filed a Chapter 7 within four years, the automatic stay will still protect them while they are making payments into their plan.
The automatic stay is an incredibly powerful tool in bankruptcy. And, our bankruptcy lawyers will be happy to explain how it works in more detail when you contact us. But, how great would it be to simply stop all of your creditors debts in their tracks? Phone calls, law suits, garnishments, repossessions, foreclosures, evictions, utility cut offs and the placement of liens on property are all prohibited. If a creditor gets notice of the bankruptcy and tries to collect a debt anyway, they can be sanctioned. Creditors take the automatic stay very seriously.
If the creditor does not get notice and collects a debt after the bankruptcy filing, they must give the money or the property back but can not be sanctioned. It is important to list all the addresses of your creditors accurately so they get notice from the bankruptcy court. If you are facing an emergency, you or your bankruptcy attorney can provide notice to the creditor without having to wait for the bankruptcy court to mail it, which can take a few days.
A creditor can ask the bankruptcy court to modify the automatic stay, which allows them to continue debt collection. Often this means a mortgage company or car company wants to continue foreclosure or repossession. In a Chapter 7, you must be current on mortgages or car loans or the creditor can modify the automatic stay in as little as a month.
In a Chapter 13, they cannot modify the stay unless your plan doesn’t provide payments to them, they can convince the judge that your plan won’t work, you are behind on your payments or are not keeping the property insured. There are other reasons to modify the stay and one of our bankruptcy lawyers can help you determine if any of these apply to you. For example, Section 362 of the bankruptcy code, which covers the automatic stay, simply says that it can be modified “for cause”, meaning for a good reason.
Usually that means a secured creditor, such as a mortgage company or a car company, is not being “adequately protected” – their collateral is in danger because it is not insured, they are not getting enough money to cover the depreciation of their collateral, or they are not receiving a stream of payments.
If you have questions about the automatic stay or how it can help you, we encourage you to call our offices for a free, no obligation consultation. From our bankruptcy law offices in Seattle, Bellevue, Everett, Tacoma, and Olympia, we serve all of King County, Snohomish County, Pierce County, and Thurston County.