How does the automatic stay work to stop foreclosures, repossessions or other collection efforts from taking place?
Just by filing a bankruptcy petition, an “automatic stay” against all collection efforts is put in place. This is a powerful tool of bankruptcy and one of the law’s primary protections for debtors. Most creditors have to stop all efforts to collect from you. Creditors must stop making calls to you, stop sending letters, stop all lawsuits to collect, etc.
The automatic stay also stops foreclosures, repossessions or sales of property from going forward. If you don’t pay your house payments, however, the creditor will have the right to continue the foreclosure once the dust settles. Thus, the benefits of the automatic stay may be temporary when the creditor is a secured creditor.
There are a number of exceptions to the automatic stay. For example, attempts to establish or collect alimony or support obligations are not stayed, nor are criminal suits or suits by governmental agencies to protect the public.
Moreover, the automatic stay does not arise if you are filing a case within a year of filing two other bankruptcy cases that were dismissed because you did not file all the paperwork or otherwise follow through in your cases. If this happens, the stay is not automatic, but you can still request the protection of a stay.
Just remember that as to secured creditors, the automatic stay is temporary. It means only that creditors must ask the court before taking action. No bankruptcy filing allows you to keep property that is security for a loan without making payments on the loan. If you are behind on the payments and the property is of insufficient value to satisfy the debt, or there is risk of loss of the property, a secured creditor may obtain court permission to seize and sell the property.
In addition, in a chapter 7 case, as soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession if you are behind on the payments. If you have problems with secured debt, you may be better off filing a chapter 13 case than a chapter 7 case because the chapter 13 will allow you to pay off the past-due secured debt over time.
In chapter 13, the automatic stay also protects people other than you who are “co-debtors.” Co-debtors are people who also have an obligation to pay the same consumer debt as you do. That includes people who have guaranteed the debt for you.