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Automatic Stay

What is an Automatic Stay and How is it Used?

When you file any bankruptcy case, the automatic stay immediately takes effect. I’m not overstating the truth when I say it strikes fear in the hearts of creditors. One creditor attorney told me, after I notified him that I filed my client’s bankruptcy the day before the attorney had a hearing scheduled, that he promised not to event point his car in the direction of the court house. (True story!)

The automatic stay stops all actions against the consumer debtor. It stops lawsuits, garnishments of wages and bank accounts. Also stops foreclosures and repossession, too. It will temporarily stop an eviction, but not for long.

Because of the way the law is worded, it stops all civil actions, including divorce and dissolution, so if you are involved in a family law matter and contemplating bankruptcy, be sure you are aware of this.

Stopping garnishments with the automatic stay has saved thousands of my clients form losing their cars or getting evicted from their apartments.

I’ve stopped foreclosure sales by filing bankruptcy cases literally minutes before a scheduled sale of my client’s homes. The bankruptcy automatic stay is, no doubt, a debtor’s most powerful tool when collection actions threaten harm.

Automatic Stay

Automatic Stay Exceptions

Like most things in the law, there are exceptions. If you have filed a previous bankruptcy, and it is dismissed and you file another one within the year of the first filing, the stay only lasts for 30 days. This may sound like a second bankruptcy filing might not do much for you.

Due to court’s interpretation of the way the automatic stay is written, at least in the Southern District of Ohio, the effect of the second filing is generally that the stay is honored. This arises mainly in repeat Chapter 13 case filings.

But what about a third filing within a year? Different outcome. The automatic stay DOES NOT arise, unless the debtor files a motion to impose it. This may or may not work. The debtor has to convince the court that the third bankruptcy was filed in good faith and that there have been significant changes in circumstances to warrant the imposition of the stay.

Creditors often object to these motions. They arise almost exclusively due to debtors trying to stop real estate foreclosures.

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Other Exceptions to the Automatic Stay

Family law matters to modify support are not stayed. Neither are actions to establish paternity, or issues involving custody. Collection of child support payments can continue despite the automatic stay. Law enforcement matters are not stayed, either. So, criminal prosecutions will continue regardless of the filing of a bankruptcy. Tax administration matters, requiring you to file tax returns can continue despite the filing of a bankruptcy. Audits of your returns can continue. But the collection of taxes, even IRS bank levies and wage garnishments must stop. Even the IRS has to obey the stay. The automatic stay is fundamental to a consumer’s fight to get some breathing room when creditor collections threaten our well being. If you feel like your back is up against the wall and you are out of options, like your creditors are circling like wolves around you, the automatic stay can turn the tables on them in an instant. But don’t wait until the wolves are at your door. Get in touch with us to learn your options before you need the assistance of the automatic stay.

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