How Long Does the Automatic Stay Last?
One of the most significant benefits of filing for bankruptcy is a feature known as an "automatic stay." An automatic stay is an injunction against creditor actions during a bankruptcy case. In other words, it prevents creditors from collecting (or even trying to collect) on debts owed by the person or entity which has filed for bankruptcy.
If filing for bankruptcy is the financial strategy that you have chosen to reorganize your finances, then you must learn how to make the most of the automatic stay feature while avoiding potential pitfalls.
Automatic Stay: Timelines
In most cases, the stay against creditor action goes into effect the moment someone files any type of bankruptcy case, hence the “automatic” in "automatic stay." However, there are some reasons why a stay can be delayed or not go into effect at all. Although rare, a bankruptcy court has the power to lift an automatic stay. For example, a court may lift a stay during divorce proceedings or to allow for foreclosures on underwater properties.
Exceptions to the Rule: Serial Filings
Serial bankruptcy filers are debtors who repeatedly file for bankruptcy over a short period of time. Unfortunately, there is no preset determination of what "a short period of time" is. The decision is made on a case-by-case basis, usually by a bankruptcy judge or trustee.
For example, let's say you were recently discharged from a Chapter 7 bankruptcy, but to protect your house or car, you immediately file for Chapter 13. While within the Chapter 13, you realize that you are unable to keep up with the re-payment plan, so you allow your case to be dismissed and refile again soon after. This is an example of a serial filer.
When a bankruptcy judge or trustee has deemed you a serial filer, this can impact the timeline of your automatic stay, or cancel it altogether. Here are a couple of common serial filer scenarios and how they impact automatic stays:
- Two cases in one year: If you have had one bankruptcy case pending during the previous year, and then file a second one, the second case's stay will only last for 30 days, unless you successfully make your case for why the court should extend it.
- Three cases in one year: If you have had two bankruptcy cases pending during the previous year, the stay will not go into effect at all when you file the third case. To remedy that, you can file a motion, set a hearing, and try to convince the judge that filing three cases is reasonable for your specific situation. You'll need to demonstrate that you aren't trying to take advantage of your creditors or abuse the bankruptcy system.
Automatic Stay Termination
The length of the automatic stay depends on whether it applies to collection activity against the debtor or against the debtor’s property.
Collection Activity Directed Towards the Debtor
For the debtor, the automatic stay generally lasts until the debtor receives a discharge. At that point, creditors can re-commence collection activity on debts that are not discharged. For debts that are discharged, a permanent discharge injunction takes the place of the temporary automatic stay.
Collection Activity Directed Towards the Debtor's Collateral Property
Even if you file for bankruptcy, the lender is entitled to either payment of the value of the collateral or the collateral itself. When you file a Chapter 7 bankruptcy case, among the many documents you provide is a Statement of Intention that tells the court and your creditors whether you will surrender the property, redeem the collateral, or reaffirm the debt.
Those who intend to keep the property need to either redeem or reaffirm within 30 days of filing the bankruptcy case. If you fail to file the statement on time, the stay automatically lifts the next day (31 days after the original bankruptcy filing). The creditor is then free to proceed with repossession or any other lawful collection activity against that collateral.
If a creditor or collector continues collection efforts while you are under the protection of an automatic stay, that's a violation of bankruptcy law, and you can stop it. Should this violation take place, and if it's shown to injure a bankruptcy petitioner, the creditor or collector may have to pay compensatory damages, reimbursement of attorney's fees, or punitive damages.
In most cases, when a creditor infringes upon a stay, it is typically due to the timing of when a case was filed. The creditor may not be aware that a bankruptcy petition has been filed.
Knowledge is Power
Navigating through a bankruptcy can be a cumbersome process. Knowing the ins and outs of one of its most valuable features will give you a huge advantage as you work through that process. Remember to always consider consulting with legal experts; filing for bankruptcy is a substantial decision that will impact both your finances and your personal life.