Automatic Stay: What does it do?

The automatic stay is an injunction against against the continuance of any legal action against a debtor or the debtor’s property. 11 U.S.C. 362. The automatic stay protects a debtor from harassing collection calls, repossessions, foreclosure sales, and garnishment of wages.  The protection from the automatic stay starts as soon as the debtor gets a bankruptcy case number.

For example, let’s say a creditor lawsuit has been filed against a person who lives in Grand Rapids, MI and that person comes to see me to file a Chapter 7 bankruptcy.  As soon as we get a bankruptcy case number and notify the creditor of the bankruptcy filing, the creditor must stop all collection actions.

For another example, let’s say I have a client from Kentwood, MI who is worried that their car creditor is about to repossess their car.  Once we have a bankruptcy case number and we have notified the car creditor, the car creditor must stop all efforts to repossess the car. Any creditor that ignores the filing of a bankruptcy case and repossesses a car post-petition can be severely punished by a bankruptcy court.