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What is an 'automatic stay'?

One of the goals of this blog is to make bankruptcy law terminology more accessible to a consumer audience.

For example, the term "automatic stay" is often bandied about in bankruptcy cases. You may have heard this term before, but not really have known what it means.

In this post, then, we will provide a basic introduction to the automatic stay on collection proceedings that comes with a bankruptcy filing.

The authority for the automatic stay comes directly from U.S. statutes. More specifically, the provision is found in title 11 of the U.S. Code at section 362.

The automatic stay is an injunction. That means it is a court order prohibiting certain conduct.

In this case, the conduct that the order prohibits is collection activities by creditors of a debtor who has filed for bankruptcy.

This does not mean that the creditor will not be able to collect anything. But once a bankruptcy petition is properly filed, a creditor’s collection efforts depend upon the process overseen by the bankruptcy court.

We noted an example of this in our March 11 post in the context of foreclosure.

To be sure, filing bankruptcy does not guarantee that a debtor who is way behind on mortgage payments will be able to keep his or her house.

But the protections provided by the automatic stay in bankruptcy do include an immediate halt to forfeiture actions.

Of course, there are plenty of nuances and fine legal points that can be involved in the application of the automatic stay in particular cases. That is why it makes sense to discuss your unique situation with a knowledgeable bankruptcy lawyer.

Source: Cornell University Law School, Legal Information Institute, "11 U.S. Code Section 362 - Automatic stay," Accessed July 8, 2014

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