The federal bankruptcy code was enacted to help people in financial difficulty rebuild their financial situation. One of the most powerful tools is an order often referred to as the “automatic stay.” The remedies provided in the bankruptcy code are intended to ensure that all creditors of the bankruptcy petitioner are treated equally. The automatic stay was enacted to ensure that no creditor can take advantage of another creditor after the bankruptcy petition is filed. Here’s how it works.
A stay is a judicial order that is issued to preclude one or more parties from taking the actions described in the stay order. When a bankruptcy petition is filed with the bankruptcy court, the clerk immediately prepares a stay order directed to all of the creditors identified by the debtor in the bankruptcy petition. The stay order tells all creditors to immediately halt all efforts to collect all or part of their claims against the debtor. The stay applies to “the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor.” The phrase “other action” is crucial to interpreting the language of the stay because the phrase is generally interpreted as referring to all attempts to collect a debt, including those actions that do not involve court proceedings.
The language of the automatic stay language exempts certain types of debts from the effect of the stay. These claims include actions for past due child support or alimony, past due taxes, actions to establish paternity, or resolve issues of child custody. The automatic stay section contains several exceptions, but most of these exceptions do not apply to the great majority of bankruptcy petitioners.
The automatic stay provides very effect protection for debtors because it stops any action to foreclose a mortgage on residential real estate, thus helping debtors maintain possession of the family home. As noted, the bankruptcy code contains many exceptions to the effect of the automatic stay. An experienced bankruptcy attorney can provide useful advice on the effect of the stay in an individual case.