What is an Automatic Stay?

Many of our Phoenix area bankruptcy clients hear bankruptcy terms like the automatic stay bandied about without knowing precisely what the automatic stay actual represents.

Filing a bankruptcy case in Arizona creates an automatic stay under the bankruptcy code. The automatic stay gives the debtor room to breathe by banning most collection efforts by creditors. Specifically, it bars starting or continuing most collections activities including phone calls, lawsuits calls, written demands for payment, foreclosure, repo or garnishment. While the “co-debtor stay does not exist in a chapter 7 bankruptcy, it is a feature of chapter 13 bankruptcy. Thus, if you file a Chapter 13 bankruptcy and your co-debtor spouse opts not to file, your spouse is protected from collections activity as well.

The automatic stay does not always go immediately into effect upon a case filing. If the debtor had a pending bankruptcy case dismissed in the year before the new bankruptcy filing, it is necessary to file a motion to continue the automatic stay or the stay will simply terminate 30 days after the filing of the new case.

There are some exceptions to the absolute bar normally imposed by the automatic stay. An exception is made for the commencement or continuation of a civil action to either set or modify an order for domestic support obligations. Similarly, if your landlord has obtained a judgment of eviction against you prior to the time of your bankruptcy filing, the automatic stay will generally not even go into effect.

While utility companies are temporarily barred from discontinuing your service, they can require you to make a reasonable deposit (normally way less than what you owed at the time of filing within 20 days of the filing of your case. The automatic stay does not bar the IRS or Arizona Department of Revenue from auditing you, demanding tax return or issuing an assessment. They are, however, barred, at least temporarily, from seizing property or issuing a tax lien.

The bankruptcy courts have the ultimate authority to determine the parameters of the stay. State courts, such as the Maricopa County Superior Court, have no ability to either terminate or modify the automatic stay. The Ninth Circuit which includes Arizona has determined that actions taken in violation of the automatic stay are void. Creditors who willfully violate the stay can be liable for punitive and actual damages,” including costs and attorney fees. A willful violation of the automatic stay is present where a creditor or collector knew of the automatic stay, and its actions in violation of the stay were intentional.

The automatic stay ends as soon as the bankruptcy case is discharged, dismissed, or closed. Termination of the stay allows creditors to renew collection of debts that were not discharged in the bankruptcy and allows secured creditors to recover their collateral if the property was surrendered in bankruptcy or alternative arrangements for keeping it have not been completed by the parties.

Creditors may move for termination of the stay while the case is pending by filing a Motion for Relief from the Automatic Stay. If the debtor must object to the request within fourteen days of after being served The hearing is typically conducted via telephone.

If you have any questions about how you can best take advantage of the automatic stay contact Phoenix Fresh Start Bankruptcy Attorneys. Some forms of debt enjoy longer and more comprehensive benefits from the automatic stay in Chapter 13 bankruptcy than in Chapter 7 Bankruptcy so it is always wise to consult with a bankruptcy attorney before making the decision to file.