The Automatic Stay

A big “Stop Sign” to the creditors. The automatic stay is probably the most important feature of Chapter 7 Bankruptcy, separate and apart from actually receiving a discharge of debts. The commencement of a bankruptcy case imposes an immediate automatic restraining order upon all creditors, regardless of the bankruptcy chapter that is filed. The source of this law is contained in Section 362(a) of the Bankruptcy Code, which sets forth a list of the different types of actions against a debtor which are automatically stayed by commencement of the bankruptcy case.

Examples. The automatic stay stops phone calls from bill collectors, the commencement of lawsuits against the debtor for the collection of money, enforcement of judgments, collection letters, and demands for payment are all ordinary examples of the kinds of actions that are stayed by the filing of the bankruptcy case. Perhaps even more powerful is that the automatic stay stops foreclosure and repossession so this is an extremely powerful component of the bankruptcy laws and any debtor who is faced with the imminent repossession of a vehicle or the imminent foreclosure of real property will often resort to Chapter 7 if for no other reason then to gain time to try and resolve the debt problem and come up with a method of curing a default.

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