The filing of a bankruptcy case, under any chapter of the Bankruptcy Code,
triggers an injunction against the continuance of any action by any
creditor against the debtor or the debtor's
property. 11 U.S.C. 362.
13, the stay even protects co debtors who are liable with the debtor on consumer
The automatic stay gives the debtor protection from his creditors, subject
to the oversight of the bankruptcy judge, and brings all of the debtor's
assets and creditors into the same forum, the bankruptcy court, where
the rights of all concerned can be balanced.
The '05 amendments to the Bankruptcy Code instituted limitations on
the duration of the stay in the case of repeat filers: debtors who had
a prior case pending in the last year which was dismissed
get a stay of 30 days; debtors with two or more cases pending in the
past years but dismissed get no stay at all. The debtor in those situations
must seek a stay from the court in order to have the protection of the
automatic (or not so automatic) stay. Here's a technical
outline of the changes.
The automatic stay prohibits
- Beginning or continuing law suits
- Collection calls
- Foreclosure sales
- Garnishment or levies
The automatic stay remains in effect until
Thus in Chapter 7, the stay may prevent immediate foreclosure on a
debt secured by real estate
but the stay will expire, and the creditor freed to proceed, when
the debtor gets a discharge. (This assumes that there is no non
exempt equity in the property for the bankruptcy estate.) In Chapter
13, the stay remains in effect for the life of the Chapter 13 plan.
More on how a creditor gets relief from the automatic
Stay permanent upon discharge
When the debtor gets a discharge, the automatic stay is replaced by a
permanent injunction prohibiting creditors from all of those actions with
respect to discharged pre petition debts that the automatic stay prohibited.
More on the nature of the bankruptcy discharge.
Outside the stay
The automatic stay does not stop the following:
- Criminal proceedings
- Actions for a family support order or the modification of such order
- Actions to collect support from property that is not property of the
- Tax audit, demand for tax returns or assessment of tax (collection of tax
is still stayed: the tax authorities, to their chagrin, are subject to
the stay, just like other creditors).
Violations of the stay
Anyone who willfully violates the stay in the case of an individual is liable for actual damages
caused by the violation and
sometimes for punitive damages. Some courts confine the right to damages
to individual debtors and deny damages for stay violations as to corporate
Since the court usually takes several days to several weeks to
mail creditors notice of the bankruptcy, it is incumbent on the debtor or
debtor's counsel to give actual notice to creditors who might take action
without knowledge of the stay.
Creditor actions taken after the stay is in place are generally void or
voidable: that is, any action the creditor takes in violation of the stay
has no legal effect.