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The Automatic Stay

The automatic stay is perhaps one of the most sought after features of personal bankruptcy. First, let’s take a look at the term itself. The “automatic” in “automatic stay” refers to the fact that the stay arises by the debtor’s filing for bankruptcy; it does not require a separate petition or hearing. The word “stay” refers to the fact that it enjoins (prohibits) creditors and their debt collectors from commencing or continuing debt collection procedures against the debtor in bankruptcy. Common debt collection measures from which debtors seek refuge under the stay are wage garnishments, lawsuits and phone calls. Creditors are made aware of the stay by the court, which sends a notice to each creditor listed in the bankruptcy petition. However, certain high-priority debts like domestic support are not covered by the stay.

A common reason for seeking bankruptcy protection is fear of foreclosure. In this area, as in many other situations in law, time is of the essence. The automatic stay will stop the bank from starting foreclosure proceedings against you or from continuing a foreclosure process that was already in progress at the time of your bankruptcy filing. If a foreclosure has happened already, filing for bankruptcy will not reverse it. Thus, if you are behind on your mortgage payments, it is imperative to consult a bankruptcy attorney sooner rather than later so that you can file in time to try to save your home. If you file for Chapter 13 bankruptcy, you must keep up with your repayment plan obligations. If you do not, you may end up losing your home despite being in bankruptcy. 

A less common but still important consideration is the issue of whether automatic stays protect co-debtors. A co-debtor is someone other than the debtor who is responsible for the debt if the debtor fails to pay it. For example, a co-signer on a loan promises to pay back the loan if the debtor does not. Because the function of a co-debtor is to provide the lender with an alternative source of funding, it would make little sense to excuse the co-debtor from his or her debt obligations in exactly the same manner as the debtor is excused. If that were to happen, the co-debtor would become equivalent to the debtor, thus negating the function of having a co-debtor in the first place. Instead, co-debtors are usually excused from consumer debt (money owed from personal and family purchases) but not from other categories of debt.