As soon as an individual or entity files a bankruptcy petition, the U.S. Bankruptcy Code triggers an immediate and powerful protection-the automatic stay. This court-ordered injunction, which is a result of the operation of law, swiftly comes into effect, prohibiting most actions by creditors to collect on pre-bankruptcy debts outside of the bankruptcy proceeding itself.
Specifically, the automatic stay stops creditors from commencing or continuing lawsuits, wage garnishments, repossessions, foreclosures, shutting off utilities, and nearly all other debt collection actions taken against the debtor or the debtor’s property. It gives the debtor a reprieve and a breathing spell from creditor harassment. This comprehensive protection ensures that all aspects of the debtor’s financial situation are considered and addressed.
The stay will remain in place for the duration of the bankruptcy to allow the orderly administration of the case, including the potential discharge of debts. Creditors, however, are not left without recourse. They can request relief from the automatic stay by filing a motion with the bankruptcy court, which may allow collections to proceed in limited circumstances. This process ensures that creditors have a fair opportunity to present their case.
The automatic stay is one of the most essential protections in bankruptcy, as it prevents creditors from improving their positions or obtaining an unfair head start over other creditors. At the same time, the bankruptcy process comprehensively addresses the debtor’s assets and liabilities. However, certain debts, like criminal proceedings and domestic support obligations, are not automatically stayed.