How Long Does the Automatic Stay Last?
One of the most significant benefits of filing bankruptcy is a feature called automatic stay. An automatic stay is an injunction against creditor actions during a bankruptcy case, that prohibits creditors from continuing their collection efforts.
If filing for bankruptcy is the financial strategy that you have chosen to reorganize your finances, then you must learn how to successfully enact the automatic stay feature, as well as knowing what pitfalls to avoid.
Automatic Stay: Timelines
In most cases, the stay against creditor action goes into effect at the moment someone files a bankruptcy case, no matter the type of bankruptcy. The term “automatic” refers to the fact that the stay usually requires no court action to go into effect. In contrast, there are some occasions when the stay can be delayed or not go into effect at all. Also, although rare, a bankruptcy court may lift an automatic stay as well. Some examples of a stay being lifted would include foreclosure proceedings on an underwater property and divorce proceedings happening simultaneously.
Exceptions to the Rule: Serial Filings
In short, serial bankruptcy filers are debtors who repeatedly file for bankruptcy over a short period of time. Unfortunately, there is no set time frame, and this decision lies with the bankruptcy judge and/or trustee who is preceding over your particular case.
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 agreed-upon re-payment plan—you allow your case to be dismissed—and then 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 have a significant impact on your automatic stay. Some common scenarios include:
- Two Cases in One Year: If you have had one bankruptcy case pending during the previous year, and then file a second one, the stay will only last for thirty days in the latter case unless you ask the court to 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. In addition, you also need to show that you're not trying to take advantage of your creditors or abuse the bankruptcy system and that you deserve the automatic stay.
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, another injunction goes into effect called the discharge injunction.
Collection Activity Directed Towards the Debtor's Property
A creditor can take action against the debtor’s property even if the automatic stay is still in effect and protecting the debtor personally.
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. You must file the Statement of Intention within 30 days of filing the bankruptcy case. If you fail to file the statement on time, the automatic stay automatically lifts on Day 31.
The creditor is then free to proceed with repossession or any other lawful collection activity against that collateral.
If a creditor or collector is too enthusiastic and continues collection efforts after your bankruptcy is filed, while you are under the protection of an automatic stay, you can stop it. A creditor dismissing the injunction of an automatic stay is a violation of bankruptcy law. Nonetheless, should this violation take place, you may be subject to compensatory damages, reimbursement of attorney's fees, and potentially punitive damages when a creditor’s willful violation injures a bankruptcy petitioner.
In most cases, when a creditor infringes upon a stay, it is typically due to the timing of when a case was filed or lack of awareness that a bankruptcy petition has been filed at all.
Navigating through a bankruptcy can be a cumbersome process, and knowing how one of its most valuable features work is a huge advantage. Remember to always consider consulting with legal counsel as filing for bankruptcy is both a substantial financial and personal decision.