The automatic stay in bankruptcy is a court order that takes effect the moment a petition is filed and stops most collection against you: lawsuits, wage garnishments, bank levies, foreclosure sales, repossessions and collection calls. It comes from section 362 of the Bankruptcy Code, requires no separate hearing, and applies in both Chapter 7 and Chapter 13.
What the automatic stay in bankruptcy stops
Once your case is filed, creditors must stop almost every effort to collect debts that arose before the filing. That includes:
- Lawsuits and judgments. Pending collection suits are frozen, new ones cannot be filed, and existing judgments cannot be enforced. See whether bankruptcy stops a lawsuit for more detail.
- Wage garnishments and bank levies. An employer must stop withholding once notified. Our article on bankruptcy and wage garnishment covers timing and recovering recent withholdings.
- Foreclosure. A California trustee's sale cannot go forward while the stay is in effect, even if the sale date has been set.
- Repossession. Lenders cannot take cars or other collateral.
- Utility shutoffs. Utilities cannot cut service for pre-filing bills during the first 20 days; after that, they may discontinue service if you have not provided adequate assurance of payment, such as a deposit.
- Calls, letters and emails. Collection contact about pre-filing debts must stop.
- Most IRS and California tax collection. Levies and seizures for pre-filing taxes are paused.
If a sale, garnishment or levy is scheduled in the next few days, call (415) 754-0115 now to schedule a free consultation, or use our contact page. The stay only protects you from the moment a case is actually filed.
What the stay does not stop
Section 362(b) lists exceptions. The most common ones for individuals are:
Family law matters
Collection of child support and alimony from property that is not part of the bankruptcy estate continues, including wage withholding for support. Divorce, custody and paternity proceedings can go forward, although the division of property in a divorce is generally paused.
Criminal proceedings
A criminal case continues even if it relates to a debt, such as a bad-check charge.
Certain tax actions
Tax agencies may still conduct an audit, issue a notice of deficiency, make an assessment and demand payment. What they generally cannot do is levy or seize property to collect pre-filing taxes while the stay is in place.
Some evictions
If a landlord obtained a judgment for possession before you filed, the eviction may be able to proceed, subject to narrow procedures for residential tenants. Evictions based on endangering the property or illegal drug use have their own exception.
Government regulatory actions
Licensing boards and other agencies enforcing health, safety or regulatory rules are generally not stopped, although they cannot use those powers simply to collect money.
When creditors can ask to lift the stay
The stay is automatic, but not absolute. A creditor can file a motion for relief from the automatic stay under section 362(d).
Grounds a creditor may raise
- Lack of adequate protection. For example, you are not making payments on a car that is losing value, or you have no insurance on collateral.
- No equity and not needed. The debtor has no equity in the property and it is not necessary for an effective reorganization.
- Bad-faith schemes involving real property. Repeated filings or transfers designed to hinder a lender.
How you can respond
Your attorney may oppose the motion, propose adequate protection payments, or negotiate an agreed order setting conditions for keeping the property. In Chapter 13, curing missed post-filing mortgage payments is often the key to keeping protection in place. Many lenders will agree to terms rather than litigate if there is a credible plan.
How long the protection lasts
Protection for property generally lasts until that property leaves the bankruptcy estate. Protection for you personally generally lasts until the case is closed or dismissed, or a discharge is granted or denied. After a discharge, a separate permanent injunction bars collection of discharged debts.
Repeat filers get less
If you had one case dismissed in the year before filing, the stay generally expires after 30 days unless the court extends it. With two or more dismissals in that year, no stay takes effect unless the court imposes one. That makes a well-prepared first filing especially valuable.
The co-debtor stay and violations
Chapter 13 adds a co-debtor stay that generally protects a co-signer on consumer debts, such as a parent who co-signed a car loan, while the plan is active. Chapter 7 has no equivalent. If a creditor willfully violates the stay, section 362(k) allows an individual to recover actual damages, including attorney's fees, and in some cases punitive damages. Keep every letter, voicemail and record of garnished pay after filing.
Using the stay with a Tri-Valley bankruptcy attorney
Attorney Bob Somal represents individuals and small businesses in Pleasanton, Dublin, Livermore, San Ramon, Danville and throughout Alameda and Contra Costa Counties. The Somal Law Firm's bankruptcy and foreclosure defense practice focuses on filing in time to trigger the automatic stay in bankruptcy when a deadline is close, notifying the creditors who need to know, and defending the stay if a lender challenges it.
On filing day, a few practical steps make the stay work in the real world. Keep your case number handy. Forward it to any employer processing a garnishment, the bank that froze your account, and the trustee handling a scheduled foreclosure sale. Write down the date, time and name for every collection contact that happens after filing, because that record is what proves a violation if one occurs.
Frequently asked questions
How quickly does the stay start?
Immediately upon filing, even before creditors receive notice. Your attorney can also contact a foreclosure trustee, employer or levying creditor directly with the case number.
Does the stay stop a foreclosure sale permanently?
No. It pauses the sale. Keeping the home long term usually depends on a Chapter 13 plan or another solution with the lender.
Can I file a quick petition just to get the stay?
An emergency filing with the petition and a few key documents is possible, but the remaining paperwork has strict deadlines, and missing them can lead to dismissal.
When a creditor is days away from taking action, timing is everything. Call (415) 754-0115 or reach us through the contact page for a free consultation with Bob Somal, and we will explain what the stay can stop in your situation and how quickly a case can be filed.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.