The automatic stay goes into effect as soon as a bankruptcy case is filed. The stay acts as an order by the bankruptcy court that prevents creditors from continuing most actions against a debtor. The automatic stay applies to almost all creditors, even where the underlying debt may not be discharged in the bankruptcy case. The protection of the automatic stay typically lasts until the case is dismissed, the debtor receives a discharge or the court grants a motion filed by a creditor to “lift” or for “relief” from the stay which is how a creditor may ask the Court to end or modify the stay.
Once a bankruptcy case has been filed, the automatic stay goes into effect and creditors are forbidden from taking most actions to collect their debt. Actions that are forbidden include telephone calls, continuing with lawsuits or collection activities, foreclosures and taking assets for failure to pay a debt.
All lawsuits pending against the Debtor are stopped when a bankruptcy case is filed. A creditor who has not completed a lawsuit may not do so without the permission of the Court. A creditor who has obtained a judgment may not take any further actions to collect the money owed in the lawsuit without the permission of the Court. If a creditor has an unsecured claim such as most credit cards and medical bills, chances are the creditor will not be permitted to re-commence the lawsuit if the bankruptcy is succesful.
For anyone concerned with protecting assets, a discussion with an experienced bankruptcy attorney is a good idea. There are important exceptions to the automatic stay, particularly with reference to government enforcement actions, some family law matters and where a debtor has filed more than one bankruptcy case. Important rights that cannot be recovered may be lost by delay. If possible, a discussion with an attorney should occur before a creditor obtains a judgment, repossesses a vehicle or conducts a sale. Certain rights are lost when each of these occurs. An attorney can also help explain when a Court is likely to retain the stay in place and what Debtors can do to make this more likely.