The People’s Lawyer

How the automatic stay in bankruptcy stops collection efforts

On Behalf of | Sep 19, 2022 | Uncategorized

People who find themselves in financial distress often consider filing a petition for bankruptcy to protect themselves from abusive debt collection and to resolve their financial situation. Very few people in West Virginia are aware of the miracle-like effect of the so-called automatic stay that follows the filing of a petition for bankruptcy.

Understanding the basics of the automatic stay

The U.S. Bankruptcy Code contains a provision that provides immediate protection for petitioners from their creditors. In simple terms, the automatic stay is a court order that stops all attempts by creditors to collect on debts owed by the petitioner. The rationale for this provision is straightforward: the drafters of the bankruptcy code want to preserve the debtor’s assets so that some creditors cannot take unfair advantage of other creditors by pushing ahead with their collection activity.

When a West Virginian files a petition for bankruptcy protection, the clerk of court in the federal court where the petition is filed is required to automatically issue an order that halts all collection activity by all of the debtors identified in the petition.

How long does the stay last?

The stay lasts until the bankruptcy proceeding is finished. A bankruptcy proceeding can be finished by the issuance of a final order or the liquidation of the petitioner’s non-exempt property. A creditor can ask the judge to exempt it from the stay if it can meet certain evidentiary standards of proof.

The automatic bankruptcy stay can provide what might seem to be miraculous relief from pressing debt, but the stay does not apply to all types of debt. Income tax is one example of a debt that is not subject to the stay. An experienced bankruptcy attorney can provide helpful advice on how the automatic stay will affect an individual’s financial position.