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The miracle of the automatic stay in bankruptcy
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The miracle of the automatic stay in bankruptcy

On Behalf of | Aug 3, 2023 | Bankruptcy & Asset Protection

Most residents of south Florida regard bankruptcy as an admission of financial failure, either as an individual or as a business entity. This attitude prevents individuals from perceiving the many advantages of filing a petition with the bankruptcy court, not the least of which is the discharge of financial obligations that interfere with efforts to restore one’s life or one’s business to a solvent situation. One of the most powerful remedies provided by the bankruptcy code is the so-called “automatic stay,” an order issued by the court that has the legal effect of stopping all efforts by the debtor’s creditors to collect on existing obligations.

What is the stay?

A stay is an order issued by a court that stops the recipient of the order from taking the actions described in the order. The Bankruptcy Code requires the clerk of bankruptcy court to automatically issue a stay order to all creditors of the debtor, ordering them to halt all actions, including judicial process or other means, to recover a claim against the debtor. The inclusion of the phrase “other action” is important because it means that the stay applies to non-judicial methods of recovering a claim, such as phone calls or letters.

The benefit of the automatic stay

The automatic stay provides complete and automatic relief to an individual or business from all claims of creditors. For an individual, this relief means all pending judicial actions are halted and no more harassing phone calls or letters will be made. For a business, the automatic stay gives the business a chance to reorganize its finances and restore its relationship with suppliers and service providers.

Exceptions from the automatic stay

Some claims are exempt from the automatic stay. Exempt claims include past due child support, unpaid taxes, an action to determine paternity, an action to dissolve a marriage, and an order regarding domestic violence. Many different commercial and financing transactions are also exempt from the stay

Relief from the stay

Any creditor who is subject to the stay and who has an interest in the debtor’s property may petition the bankruptcy court for relief from the stay upon a showing of good cause.

Getting solid advice

The code provision governing the automatic stay is very lengthy and contains a number of exceptions and qualifications. The advice of an experienced bankruptcy attorney is essential to understanding the effect and limits of the automatic stay provision.