Personal Bankruptcy | Automatic Stay

Creditors Must Leave You Alone

Under either kind of bankruptcy, your creditors must leave you alone immediately.
An automatic stay is a statutory “order” that protects the debtor and his property and prohibits actions by creditors after the filing of a bankruptcy. The “automatic stay” arises automatically and does not require any specific order by a judge. Generally, most acts against the debtor, the Bankruptcy estate, or the property of the debtor MUST CEASE upon the filing of the Chapter 12 bankruptcy. See Section 362 (a), reproduced here for illustration purposes only.

The automatic stay generally applies to everyone and every entity. The stay gives immediate relief to the debtor. The stay is an important concept that permits the orderly administration of a bankruptcy case. All proceedings against a debtor, with the few exceptions listed below, are prohibited. The enforcement of a judgment entered prior to the filing against the debtor or the property of the estate is prohibited. The enforcement, initiation, or continuation of a lawsuit, acts to repossess collateral, and wage garnishments may all be prohibited. The setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor and most acts to enforce or perfect liens against the debtor’s property are prohibited. A limited exception is discussed in Actions To Perfect Security Interests below.

For so long as the stay is in effect, creditors generally cannot even make a telephone demand for payment to a debtor. The automatic stay should be respected and taken seriously. Section 362 (h) provides that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages. Actual cases should be discussed with your actual legal advisor or legal department.

Co-Debtor Stay

Section 1201 of the Bankruptcy Code provides that in bankruptcy for individuals filed under Chapter 12, a creditor may NOT pursue against a co-debtor or a personal guarantor, not in bankruptcy if the debt is a “consumer debt.” Under Section 101(8), ”consumer debt” means debt incurred by an individual primarily for personal, family, or household purposes. See Co-Debtor and Personal Guarantee from the previous menu or click here. The link does not return to this page.

Exceptions

The exceptions to an automatic stay are generally not very relevant to creditors. The exceptions include things such as criminal proceedings, child or spousal support exceptions, and tax audit exceptions. See Section 362(b), reproduced here for illustration purposes only. Actual cases should be discussed with your actual legal advisor or legal department.