Many debtors file bankruptcy to take full advantage of the automatic stay it places on collection activity from creditors during the pendency of the bankruptcy proceedings.
This is because the automatic stay is in place to give debtors time to reorganize their debts and devise a court-approved plan to repay their creditors. Overall, an automatic stay in bankruptcy proceedings can be beneficial to all parties.
When does a stay go into effect?
The automatic stay is activated when the debtor or their attorney of record files the Chapter 11 bankruptcy petition. Automatic stays are injunctions — but there are exceptions in some cases.
What are the repercussions of an automatic stay?
Stays are designed to freeze debt collection efforts to give the debtors the opportunity to sort through the morass of their finances. Once stay is in place, collection efforts are halted, including:
- Enforcement of monetary judgments from other courts
- Home foreclosures
- Wage garnishment
- Divorce proceedings
- Repossession of vehicles
- Freezing bank accounts
- Collection robocalls
An automatic stay is active until the debtor's bankruptcy petition gets dismissed or the court grants relief to creditors if they file motions to lift the stay.
Why do automatic stays get lifted?
Bankruptcy courts have the power to grant creditors relief from automatic stays in limited circumstances, e.g., when financial institutions have liens on properties with values that are less than what was declared in the debtors' bankruptcy case as long as the home is not listed as part of the bankruptcy organization and no equity remains in the property.
The courts scrutinize creditors' motions to lift the stays. The creditors have to state their reasons for the stay to be lifted and show a need for this relief.
Could your finances benefit greatly from an automatic stay? Learn how a Tampa bankruptcy attorney can help you get on stronger financial footing.