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How the automatic stay serves as a lifeline

On Behalf of | Apr 22, 2024 | Bankruptcy |

Many residents of Indiana view the filing of a bankruptcy petition as an admission of financial failure. However, when the details of the automatic stay are revealed, the stay is often seen as what Congress intended: a provision to prevent further attacks on the debtor’s assets while the debtor attempts to recover from the financial adversity that necessitated the filing of the bankruptcy petition.

What is the automatic stay?

A “stay” is an order issued by a court to the parties in a particular proceeding that prevents them from taking any of the actions described in the order. In the case of the automatic stay, the order is directed to all creditors of the debtor and prevents them from taking any action to collect on any debt owed by the petitioner. The order is “automatic” because the clerk of the bankruptcy court is required by law to issue the stay order upon receipt of the bankruptcy petition.

A creditor can ask the court for relief from the stay, but such relief is not automatic. The automatic stay terminates upon the earlier of the case being dismissed or closed or the date of discharge of the debtor is granted or denied.

Scope of the stay

The stay prohibits collection actions against both the debtor and property of the debtor. The stay does not apply to any obligation that cannot be discharged in bankruptcy. Federal taxes are a primary example. The stay also does not apply to obligations of the debtor that arose before the petition was filed.

While the concept of the automatic stay is relatively simple, the details of the stay’s application can be very complex. An experienced bankruptcy attorney should be consulted as to the exact application of the stay and its effect on the overall bankruptcy proceeding.