What is Automatic Stay Protection?
The automatic stay is a type of injunction that immediately stops suits, foreclosures, garnishments, repossessions, and collection activities against a debtor the instant the petition initiating a bankruptcy case is filed. Virtually all of a debtor's creditors are precluded from taking any collection activity once a petition is filed. The automatic stay has been likened to the functional equivalent within the bankruptcy system of a temporary injunction. The injunction operates against nearly all creditor activities that have the potential to promote a creditor's interests to the detriment of the debtor's estate property or debtor.
Legislative Intent of Automatic Stay
The purpose of the stay is to afford the debtor with the necessary breathing spell to enable him to regroup financially and take advantage of the fresh start created by bankruptcy. The legislative intent behind bankruptcy laws reveals that Congress emphasized this form of debtor protection as one of the most fundamental when relevant statutes were enacted.
Prohibited Acts Under Automatic Stay
The following actions are prohibited by automatic stay protections once a debtor files bankruptcy:
- contacting the debtor to demand payment
- requesting the debtor to provide security for existing unsecured or undersecured debts to the creditor
- initiating a suit against the debtor
- continuing to prosecute pending litigation against a debtor
- attempting to enforce a judgment against the debtor
- advancing judgment enforcement activities already under way
- directing a sheriff to continue wage garnishment proceedings
- conducting a scheduled execution sale
- perfecting a lien against a debtor’s estate property
- repossessing collateral that is estate property
- starting non-judicial or judicial foreclosure against estate property
- continuing to advance non-judicial or judicial foreclosure against estate property
It is important to realize that the automatic stay is an automatic debtor protection. There is no hearing required for it to take effect, and no judicial endorsement is required to trigger it. The manual or electronic filing of a bankruptcy petition by a debtor, attorney, or a bankruptcy petition preparer is all that is required for the automatic stay to take effect.
Limitations to Automatic Stay
The stay is temporary and does not protect third parties (individuals other than debtor) from collection activities. The stay may be lifted, modified, or terminated against some creditors and their collection activities if they successfully move for such relief and make the requisite showing required for obtaining relief under the Bankruptcy Code.
Violations of Automatic Stay
It may seem unfair, but creditors of a debtor are bound by the requirements and prohibitions of the automatic stay even before they actually discover the stay is in place. Creditors have an affirmative duty to inquire as to bankruptcy filings prior to undertaking collection activities. However, monetary sanctions are rarely awarded against creditors unless violations were willfully and intentionally made