Automatic Stay

The automatic stay is one of the most powerful tools that bankruptcy offers for the consumer.  The automatic stay is basically an order from the court that is automatically issued at the instant that the bankruptcy petition is filed.  This provision of the Bankruptcy Code allows for near instantaneous relief from the aggressive collection practices of creditors and their debt collectors.  Under the order, all creditors must cease their collection activities without delay.  Of course, the court will need to know about the creditor so that they can be put on notice.  This is one of the many important reasons that all creditors should be listed in the schedule of creditors upon the filing of the petition.

The stay is not only intended to relieve the debtor of the difficulty and inconvenience of the debt collection activities, it also seeks to freeze the assets of the bankruptcy estate so that there is not a mad scramble by creditors to take possession of assets of the debtor.  Bankruptcy is intended to provide order to the process of relieving debt, seeing that creditors are treated equally and fairly, and protecting assets that the debtor is entitled to keep for a fresh start at the conclusion of the bankruptcy case.  The Automatic Stay is one of the major conduits that achieves these goals.

Once the stay is in place, the creditors cannot seize assets, or generally take any actions to collect on the debt.  Their phone calls and visits to the debtor must stop completely.  Creditors that violate this order face very serious consequences; therefore, creditors generally closely adhere to the stay.  If the creditors do not follow the stay, you should contact your bankruptcy attorney quickly.  There are exceptions to this rule, but for a CH. 7 they are not encountered often.

The stay is in place for the duration of the bankruptcy case, and for CH. 7 cases is generally not released until the discharge.  In general, creditors cannot take any actions against the assets of the bankruptcy estate during the bankruptcy case unless they seek permission from the court.  The court can, in limited circumstance, grant a creditor the ability to seize assets during the stay.  For CH. 7 cases, however, this is not common.

For a normal CH. 7 case, the discharge usually takes place about 100 days after the petition for bankruptcy was filed.  After the bankruptcy is discharged, the creditors can resume collection for any debts that were not discharged in the bankruptcy.  In the typical CH. 7 case, nearly all debts are discharged and therefore the debtor no longer owes the debt to the creditor and they are not legally able to collect money from the debtor.   It is important to understand that any liens on property are still in force, and a creditor can take action against the property to repossess it if they choose to.  This is because the discharge is an injunction and is not as broad or powerful as the stay.  The discharge eliminates the debt as a personal liability, but any security interest remains.