The Bankruptcy Code’s automatic stay stops all creditors and collection activity in its tracks.
The automatic stay is one of THE biggest benefits of filing bankruptcy, if not the main reason people file. Not just to wipe away their debts.
The filing of a voluntary, joint, or involuntary petition under any chapter of the Bankruptcy Code automatically operates as a stay against the commencement or continuation of most judicial, administrative or other proceedings against the debtor or property of the debtor’s estate.
The purpose of the stay is to give the Chapter 11 or Chapter 13 debtor “breathing time” for rehabilitation, to give the Chapter 7 Trustee the protection necessary for administering the assets of the estate, and to relieve the Chapter 7 debtor from the pressure of creditor collection efforts. During this time, creditors should not be contacting the debtor about debts or taking action to recover property from the debtor in which they claim a security interest. If contacted by a creditor, the debtor may advise them that they have filed bankruptcy and provide them with the case number.
The automatic stay is created immediately upon the filing of your bankruptcy case, whether it be a Chapter 7 or a Chapter 13 case. The automatic stay is a one-page document that gets sent to creditors notifying them of your bankruptcy and prohibiting them from taking certain actions.
The automatic stay is typically the most important piece of a bankruptcy case, and the desired result that someone wants immediately upon filing for bankruptcy. The automatic stay basically says to debtors’ creditors that a case has been filed, they have to stop collecting immediately, and they have to let the bankruptcy court administer the case whether it’s a Chapter 7 fresh start or a Chapter 13 bill consolidation through the court.
Please note however that there are also some new limitations on the automatic stay if the debtor has had a previous case or cases dismissed under certain circumstances within the preceding twelve months. If a second case under these circumstances is filed, the stay as to some property will only be good for 30 days. If a third case is filed, then the automatic stay does not apply at all.