Automatic Stay

The immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.

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What it means

The automatic stay is the part of bankruptcy that acts fastest. The moment a petition is filed, most collection activity against the debtor has to stop: collection calls, lawsuits, wage garnishment, repossession and foreclosure. It is automatic in the literal sense - no hearing and no separate order is needed - and creditors are bound by it whether or not they have been formally notified.

Its purpose is to freeze the position so that claims can be dealt with in one orderly process rather than by whichever creditor moves fastest.

It is not unconditional. Defined categories are excluded - certain family-support proceedings and various criminal matters among them - a creditor may ask the court to lift the stay as to specific property, and the protection can be shortened or unavailable where there have been recent prior filings.

A creditor that keeps collecting after it knows of the filing is exposed: an individual injured by a willful violation of the stay can recover actual damages, including costs and attorney's fees, and in appropriate cases punitive damages (11 U.S.C. § 362(k)). The limits for repeat filers are precise. If the debtor had a case pending within the previous year that was dismissed, the stay in the new case ends after a short statutory period unless the court extends it, on a motion heard before that period runs out (§ 362(c)(3)). If two or more such cases were pending and dismissed in that year, no stay arises at all unless the court orders one (§ 362(c)(4)).

Where this comes from

When people hire a lawyer for this

The stay is often the reason a filing is urgent - a scheduled foreclosure sale or garnishment is the deadline in practice. It is also where the exceptions matter most, because assuming a particular debt is covered when it falls into an exception is a costly mistake.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

• Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
• Bankruptcy ExemptionsThe property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.
• Bankruptcy Means TestThe income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.
• Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
• Chapter 13 BankruptcyA reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
• Chapter 7 BankruptcyA liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.
• Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
• Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
• Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
• Reaffirmation AgreementA voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.
• Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganization chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

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