What Is the Automatic Stay in Bankruptcy?
Whether you file for Chapter 7 or Chapter 13 bankruptcy, this will activate something called the "automatic stay". This is something that tells all creditors and collectors that they have to stop collecting debt from you or seizing your property, at least until the bankruptcy is finished. So in Chapter 7 bankruptcy, this can buy you several months' time while your debts are getting discharged. In Chapter 13 bankruptcy, this could give you 3 to 5 years to work through your repayment plan without fear of losing property to creditors.
What can bankruptcy's automatic stay do about foreclosure?
The automatic stay can last for as long as your bankruptcy process does, and this means that while your bankruptcy is pending, your lender may not be able to foreclose on you, even if the foreclosure process has already started. The automatic stay is the exact reason that bankruptcy can be a powerful foreclosure defense tool, particularly in Chapter 13 bankruptcy.
In this reorganization bankruptcy, you can create a repayment plan that lasts three or five years. Through this new payment plan, you could catch up on your mortgage. Chapter 7 still has an automatic stay, but as it is a much shorter process, it could only stall foreclosure for a few months. Even so, this could be enough time to get back on track.
Are there exceptions to the automatic stay?
Yes. If you have filed for bankruptcy within the last year, and if that bankruptcy case was dismissed, the automatic stay might only last for 30 days. If you have had two bankruptcy cases dismissed in the last year, then there will be no automatic stay whatsoever.
However, if your first dismissed case was a Chapter 7 bankruptcy, your income was higher than the median according to the means test, and you file for a Chapter 13 bankruptcy next time around, you could still ask for the full automatic stay to go into effect.
Can creditors end or modify the automatic stay?
Unfortunately, yes. There are ways that a lender can go ahead with the foreclosure by lifting the automatic stay. You do, however, have the opportunity to challenge the foreclosure. Then it will be up to the bankruptcy court to decide whether or not to remove the automatic stay, or to keep it in place.
And even if the bankruptcy court does end the automatic stay while your bankruptcy is still pending, you could still fight the foreclosure process. This would be the case if your Chapter 13 bankruptcy plan allows you to catch up on your mortgage, giving you 3 to 5 years to pay off arrears and avoid foreclosure.
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