The Automatic Stay: The Core of Bankruptcy Protection

When a local woman was facing an unexpected wage garnishment that was draining up to 25% of her wages, she approached the experienced bankruptcy lawyers of Minnillo Law Group for help. To stop the garnishment, she filed a Chapter 13 bankruptcy in Cincinnati to invoke the “automatic stay” to stop the wage garnishment. The automatic stay is at the core of bankruptcy protection, but what is it?

What Is an Automatic Stay?

The Federal Bankruptcy Courts define an “automatic stay” as “[a]n injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.” An automatic stay gives the person filing for bankruptcy some breathing room to get their affairs in order.

The automatic stay is available to individuals who file for either Chapter 7, Chapter 11, or 13 bankruptcy. That stay is literally automatic in that it comes into full force and effect when the bankruptcy case is electronically filed with the court. A judge does not need to approve it and creditors need not have prior notice of the stay to be bound by its debtor protections.

Debtor Protections

Those debtor protections are extremely broad. For example, a creditor cannot request payment of a debt arising before the bankruptcy filing or ask for security on unsecured or under-secured debts. Moreover, a creditor cannot file a lawsuit against the debtor during the stay period or even continue previously-filed litigation. All lawsuits and debt collection activities come to an automatic halt under the automatic stay.

Even if a creditor has a judgment against a debtor from before the bankruptcy filing, the creditor cannot try to enforce the judgment and must immediately stop any enforcement measures already in motion. That means once a creditor knows of the automatic stay, it must notify a sheriff to stop any wage garnishment or to hold off on any scheduled foreclosure or execution sales. An automatic stay also prevents a creditor from perfecting a lien against the debtor, repossessing any collateral, or pursuing foreclosure.

In our client’s case, the creditor failed to stop the garnishment despite notice from the bankruptcy court and from her attorneys. When this occurred, Minnillo Law Group Co., LPA took action to enforce our client’s right to be free from garnishment while under bankruptcy. Minnillo Law Group Co., LPA filed a motion for contempt which sought not only the cessation of the garnishment, but also the recovery of our client’s wages along with damages and attorney fees. In the end, our client’s wage garnishment stopped. She received the wrongfully garnished funds and an additional amount for her trouble. Her attorney fees in enforcing the stay were paid.

Automatic Stay Limits

There are some limits on the reach of an automatic stay. A stay cannot stop previously granted eviction orders. Moreover, the Internal Revenue Service can still assess taxes and the debtor is still on the hook for child support or alimony payments. There are other exceptions that apply depending on the situation.

The automatic stay is a fundamental part of our bankruptcy laws’ debtor protections. They allow those under the heavy burden of debt to have time to catch their breath and determine exactly how they will deal with their creditors. Not only does the automatic stay help debtors assess their situation, but it helps them to preserve their assets. And, if a creditor or debt collector fails to obey the mandates of the automatic stay, the law allows for harsh penalties.