The Automatic Stay and Co-Debtor Stay
The automatic stay is one of the most compelling benefits of filing for bankruptcy. It applies in all chapters of bankruptcy and gives you the space that you need to reorganize your debts.
What is the automatic stay?
The automatic stay is codified at 11 U.S.C. § 362 and stops most collection activity once the bankruptcy has been filed. This includes wage garnishments, evictions, foreclosures, utility shut-offs, and driver’s license and registration renewals. If a creditor willfully violates the automatic stay, they are subject to actual damages, punitive damages and attorney’s fees and costs. Because of the severe consequences of violating the automatic stay, creditors are very careful not to do so.
What are the benefits of the automatic stay?
If your home or other real property is being foreclosed upon, the automatic stay stops the foreclosure, provided that the bankruptcy is filed before the foreclosure sale. If you wish to keep your home or other property, a chapter 13 bankruptcy will allow you to pay your arrears over the course of the 3-5 year chapter 13 payment plan. If you are filing under chapter 7 to stop a foreclosure, the automatic stay will stop the foreclosure proceedings, but without a long-term strategy to pay back the amounts owed on the home or other property, a creditor can still come after the home after taking certain additional action. If you wish to surrender and walk away from the home but need some time to do so, a chapter 7 bankruptcy can give you additional time and will allow you to surrender the home and essentially walk away from it.
The automatic stay will stop a creditor from repossessing your cars or other vehicles, and even if it has been repossessed, it will stop it from being sold at auction. Similar to a home, if you don’t want to keep the car, you can use a chapter 7 to walk away from the car without owing anything additional on it, and the automatic stay can give you time to find a new car or make other arrangements before you surrender the car.
If your wages or bank accounts are being garnished or are about to be garnished, the automatic stay will stop it. In Maryland, a creditor can garnish 25% of your paycheck, and the automatic stay will stop that from starting or continuing. This can help you get back on track and pay your important bills.
If you are facing eviction, the automatic stay may stop the eviction, but it depends on how along the landlord is in the eviction process. If the landlord already has a judgment of possession when you file for bankruptcy, the automatic stay will not affect that eviction. However, if the landlord has not yet filed for a judgment of possession, the automatic stay will prevent it from occurring.
Collection calls and letters
The automatic stay also stops all collection calls and letters. Instead of getting multiple calls a day from creditors, the automatic stay stops all of that and an give you peace of mind.
If you are behind on your gas and electric, cell phone or waters bills, the automatic stay will stop these essential utilities from being cut off for at least 20 days.
Driver’s License and Registration
If you have speeding ticket fines, EZ pass fines, toll fines or parking tickets, in Maryland, the Motor Vehicle Administration can stop you from renewing your driver’s license and registration. The automatic stay will stop the State of Maryland from preventing these renewals and is another benefit of filing for bankruptcy. Depending on the nature of fines, they may or may not be dischargeable in chapter 7, and a chapter 13 may be a good option to pay back the non-dischargeable fines.
In what circumstances doesn’t the automatic stay apply?
The automatic stay is a powerful tool for those filing for bankruptcy, but it does not apply in certain kinds of proceedings.
The automatic stay will not stop criminal proceedings against you, so if you receive a criminal sentence, you will have to serve that sentence even if you are in bankruptcy.
If you owe alimony or child support, the automatic stay does not stop these lawsuits from proceeding.
If you have a loan against you 401(k) or pension, the automatic stay does not stop these obligations from being paid back.
Can the automatic stay be lifted?
The automatic stay can be lifted under certain circumstances. If your current bankruptcy was filed within 1 year of a previously dismissed bankruptcy, the automatic stay will only go into effect for 30 days. In this case, the automatic stay may be able to be extended for the full term of your bankruptcy and depends on your individual circumstances.
The automatic stay can also be lifted upon request of a creditor. The most common scenario for a creditor to ask the court for permission to terminate the automatic stay is if you fall behind on your mortgage or car payments after your bankruptcy has been filed. In this case, the creditor can seek relief from the automatic stay to allow it to continue collection activity. An experienced attorney can guide you through this process and may provide options to prevent this from happening.
What is the co-debtor stay?
The co-debtor stay, codified at 11 U.S.C. § 1301, applies in chapter 13 bankruptcies and provides the benefit of the automatic stay to anyone that is responsible for a debt owed by the person who files bankruptcy. For example, if someone took out a car loan and a friend co-signed, the co-debtor stay applies to the co-signer. The co-debtor stay prevents all collection activity against the co-debtor as well.
In certain circumstances in Maryland, the co-debtor stay can actually be stronger than the automatic stay. Co-debtor’s may be entitled to additional due process considerations and in order to lift the co-debtor stay, a creditor may have to file an adversary proceeding against the co-debtor.