The Automatic Stay Stops Creditors' Collection Efforts
Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
How to Stop Creditors
When you file for bankruptcy, the law imposes an “automatic stay”, which forbids creditors from continuing their collection practices. So the act of filing for bankruptcy stops creditors. You don’t need to do anything more.
The Law Stops Creditors From…
— Suing you, or continuing to prosecute a lawsuit they previously filed;
— Enforcing an existing judgment they have against you;
— Seizing your property;
— Creating a new lien or enforcing an existing lien on your property; and
— Doing anything to collect a debt that existed when your bankruptcy case was filed.
The Automatic Stay’s Purpose
The modern Bankruptcy Code, enacted by Congress in 1978, says the following:
The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.
The automatic stay benefits both you and your creditors. It gives you a fresh start — and it requires a fair distribution of your property to creditors. In essence, it creates an even playing field for all of your creditors. It ensures that no creditors will aggressively pursue you because the automatic stay assures them that everyone will be treated fairly.
Without the automatic stay, creditors who acted more aggressively would get their claims paid and the more patient creditors would lose out. One purpose of bankruptcy is to provide an orderly liquidation method by which creditors receive equal treatment.
The moment the bankruptcy is filed, to automatic stay goes into effect. It requires no action by a judge, nor does it give your creditors the opportunity to object. The automatic stay is truly automatic.
The automatic stay shields you and your property in nearly every possible way from creditors. It stops phone calls and letters. It stops garnishments. It stops anyone from imposing liens. As the bankruptcy code says, it stops “any act to collect, assess or recover” a debt.
The automatic stay stops the repossession of vehicles and the foreclosure of homes. It stops the IRS from recording a tax lien. It stops creditors from suing you from getting a judgment or judgment lien — “any act to create, perfect, or enforce any lien.”
Yes, there are a few actions that the automatic stay does not stop. For example, it does not stop criminal proceedings. Nor does it stop family court matters involving child custody, visitation, paternity, domestic violence, marital dissolution other than property settlement, and most collection of child and spousal support.
And, in certain cases, you can lose your right to the automatic stay if you filed a recent bankruptcy case that was later dismissed.
Overcoming the Automatic Stay
While the automatic stay gives you relief from creditors’ collection efforts, any creditor can file a motion in bankruptcy court asking for relief from the automatic stay. This means the creditor wants the bankruptcy court to lift the automatic stay so it can continue its collection efforts.
These “relief from stay” motions are most often filed by secured creditors that want to continue to pursue the security (collateral) for the loan, such as to repossess a vehicle or to foreclose on a home.
The bankruptcy court weighs many factors when deciding whether to grant the relief from stay. These include your payment status, your intent to make future payments, your ability to fulfill those intentions, and the value of the collateral in relation to the amount owed.
Richard Fonfrias of the Fonfrias Law Group provides this information to help those dealing with serious financial problems understand their options. An Illinois bankruptcy lawyer and financial rescue expert with years of experience assisting people in financial distress, Rich has helped thousands of clients successfully navigate the bankruptcy process. The Fonfrias Law Group offers all types of financial legal services including bankruptcy repair, bankruptcy avoidance, foreclosure avoidance, loan modification services, mortgage repair, credit repair, tax reduction and tax lien services. As one of Chicago’s top bankruptcy lawyers, Rich Fonfrias can help you make a fresh start, through effective legal strategies that will improve your financial health and solve your problems with creditors.