What is the Role of Automatic Stay in Bankruptcy?

When filing for bankruptcy protection, a concept called an automatic stay protects a debtor from creditors and puts a halt to any lawsuits filed against that person. In additions, it also protects debtors from actions against their property from a creditor or collection agency.

The automatic stay can be a major benefit when filing for bankruptcy, especially if you are at risk for being evicted, foreclosed on or being found contempt for failure to pay child support. It can also prevent losing utility services, welfare benefits and unemployment benefits.

The automatic stay does not allow any new or existing lawsuits, collection calls, foreclosure sales or repossessions. It continues to remain in place until a judge removes the stay at the creditor’s request or when the debtor receives a discharge — the legal elimination of debt in a bankruptcy case. When the debtor receives a discharge, the automatic stay gets replaced with a permanent order that prohibits creditors from the actions the automatic stay disallowed. Despite the benefits of an automatic stay, it does not prevent any criminal proceedings, tax audits or loans from a pension from taking effect.

It’s important to note that creditors can find ways around the automatic stay. They may ask the bankruptcy court to remove the stay if it is not serving the purpose for which it was intended. For example, permission is likely going to be granted to a creditor that wants to proceed with a foreclosure if you are granted an automatic stay and you cannot pay your mortgage.

If you need more information and guidance on bankruptcy issues like the automatic stay, consult a dedicated attorney in Los Angeles.