How the automatic stay guards against claims of creditors

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Many residents of Maryland who are in financial difficulty have considered the possibility of filing a petition for relief under Chapter 7 of the Bankruptcy Code, but they are dissuaded from doing so by fear of harm to their financial reputation and their standing in the community. Many of these would-be debtors are unaware of what is called the “automatic stay” and how it can offer real protection from the claims of creditors. The automatic stay provides a tangible benefit for people who are financially stressed, and no decision about filing for bankruptcy should be made without giving thorough consideration to the effect of the automatic stay.

What is the “automatic stay”?

A stay is a legal term for a court order that prevents parties in a case from taking any action identified in the order. The automatic stay in bankruptcy court is an order that applies to all creditors identified in the bankruptcy petition. The stay is issued automatically by the court immediately upon the filing of a bankruptcy petition.

The stay prohibits all creditors of the debtor from taking any further measures to collect on a debt owed by the debtor. The fact that the stay issues automatically and immediately upon filing of the bankruptcy petition means that filing the petition slams the door on all collection activity by the debtor’s creditors. The stay applies to collection actions in court, foreclosure actions, efforts to enforce a lien against the debtor’s property, and informal collection actions such as telephone calls and letters. The stay also puts all creditors on the same playing field so that no creditor can take advantage any favorable circumstances.

How long does the stay last?

The stay remains in place until the bankruptcy proceeding is terminated by an order discharging the debtor’s debts. Creditors can obtain relief from the stay by filing a petition with the court that demonstrates good cause for such relief.

Exceptions to the automatic stay

Certain debts are not covered by the automatic stay. These debts include child support, IRS tax debts and loans from pensions.

Anyone who may be considering filing a bankruptcy petition may wish to contact an experienced bankruptcy attorney for advice on how the automatic stay will affect the person’s financial situation.

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