If your debts are spiraling out of control, you have the option to petition for bankruptcy protection under federal law. The bankruptcy code allows you a fresh start while protecting you from harassment and lawsuits by your creditors. A vital provision in the law, set forth in 11 USC § 362, provides for an automatic stay that bars creditors from taking action against you while your bankruptcy is in progress.
After you file a petition for bankruptcy, the court will issue an automatic stay, which acts as a restraining order against your creditors, preventing them from taking any collection actions including letters, phone calls, seizure of your property, garnishment of your wages or levies on your bank accounts. The automatic stay halts all lawsuits that are in progress at the time you file for bankruptcy and also prevents creditors from filing new lawsuits or taking any action to seize your property so long as the bankruptcy case remains open.
Suspension and Relief
The automatic stay bars creditors from taking any further action in a pending lawsuit. In effect, the case stops; neither the creditor nor the debtor may file new petitions or motions. The creditor must also stop any attempts to collect on judgments. For example, if the creditor has succeeded in obtaining a court order for wage garnishment, that garnishment in progress must halt. A creditor may request relief from an automatic stay. This is most common in cases where debt secured by personal property such as a home or a car remains unpaid. In such cases, the creditor may rightfully believe that uninsured collateral may be damaged or lost, forcing a total write-off of the debt. Some states allow creditors to pursue debtors for secured loans, in particular a home mortgage where the debtor has defaulted and the creditor claims the right to foreclose.
If a landlord has begun eviction proceedings due to unpaid back rent, a debtor may stay the process by filing for bankruptcy before the court handling the eviction enters a judgment in favor of the landlord. If the landlord has already won a judgment, then the eviction may proceed. If a debtor falls behind on rent or otherwise violates the terms of a lease during the bankruptcy, the stay prohibits the landlord from taking any action whatsoever. Landlords who believe criminal behavior is going on in the rental property or the tenant poses a danger to the dwelling can request that the stay be lifted and the courts allow an eviction to proceed.
Child Support and Other Exceptions
The automatic stay does not prevent collection actions on certain debts such as child support, alimony, or criminal restitution or fines. State agencies who are attempting to collect from a debtor for such obligations may proceed with garnishment and levy procedures, without filing a motion to lift the stay. The law also allows the IRS to demand payment of back taxes or the filing of late returns, or to assess new taxes. The stay does not halt action in criminal cases, divorce proceedings, paternity suits, or domestic violence cases against the debtor, nor does it prevent the state from suspending or revoking drivers' licenses.