The Automatic Stay (11 U.S.C. § 362): A Legal Expert’s Guide
By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).
The Immediate Halt: Understanding Bankruptcy’s Most Powerful Tool- The Automatic Stay
The moment a bankruptcy petition is filed in federal court, whether Chapter 7, Chapter 13, or even Chapter 11, a powerful injunction known as the Automatic Stay immediately comes into effect.
The Automatic Stay is referenced in Title 11, Section 362 of the U.S. Bankruptcy Code. This stay is designed to provide immediate relief to the debtor by forcing creditors to stop all collection efforts.
As a bankruptcy attorney and professor published in Consumer Bankruptcy Law, I consider the Automatic Stay to be the most critical protection offered by the Bankruptcy Code. It provides the breathing room necessary to organize your finances, such as delaying the foreclosure of a home or stopping wage garnishment.
What the Automatic Stay Immediately Stops:
The automatic stay is broad and applies to almost every attempt by a creditor to collect a pre-petition debt. This includes:
Foreclosure Proceedings: Cancels scheduled auction dates and stops all legal action to foreclose on a home.
Collection Calls and Letters: Creditors must immediately cease all communication attempting to collect the debt. Failure to do so could result in sanctions by the bankruptcy judge.
Civil Lawsuits: Stops most pending litigation against the debtor, including lawsuits for credit card debt or personal loans. Note, if there is a lawsuit pending and the petitioner or plaintiff is listed as a creditor, you should take additional steps, such as filing a Suggestion of Bankruptcy.
Wage Garnishment: Instantly halts any non-tax-related garnishment of your wages, bank accounts, or other property. Here’s a post discussing the steps you should take if wages were garnished after bankruptcy was filed.
Repossession: Prevents or even forces the return of property (like a car) if it was seized shortly before the bankruptcy filing.
How the Automatic Stay Works in Chapter 7 vs. Chapter 13
The duration and extent of the Automatic Stay depend on which chapter in bankruptcy is filed.
Chapter 7 Bankruptcy (Liquidation)
In a Chapter 7 case, the automatic stay provides temporary relief while the case remains pending.
Duration: The stay typically remains in effect until the bankruptcy court grants an Order of Discharge (usually 3–4 months after filing) or until a creditor successfully requests that the court lift the stay (a Motion for Relief).
Strategic Use: Often used to buy a few weeks of time to facilitate a quick home sale or stop an immediate foreclosure auction.
Chapter 13 Bankruptcy (Reorganization or Wage Earner’s Plan)
Chapter 13 offers long-term protection because the debtor is actively reorganizing and repaying debts through a court-approved plan.
Duration: The stay generally remains in effect throughout the entire 3–5 year repayment period of the Chapter 13 plan. This allows the debtor to cure mortgage arrears or pay other secured debts over time. There’s also the added bonus for co-borrowers or co-signers.
Co-Debtor Stay: Chapter 13 provides an additional Co-Debtor Stay (11 U.S.C. § 1301) that protects individuals who are jointly liable on consumer debts with the debtor, typically a spouse.
Exceptions to the Automatic Stay
This is the most misunderstood area of the Automatic Stay. The protection it offers is powerful, but it is not absolute. Certain legal actions are exempt from the stay. The following are the most common and important exceptions under §362(b):
Criminal Proceedings: The stay does not prevent criminal cases from moving forward.
Domestic Support Obligations (DSO): Family law cases such as establishing or modifying a child custody, visitation, paternity, or domestic violence order, or to collect a DSO (e.g., child support or alimony). For a deeper discussion on DSOs and “priority claims,” please read this post.
Note, it has been my experience that family court judges, out of an abundance of caution, tend to halt proceedings even when related to DSOs.
Tax Audits and Assessments: Government entities (like the IRS) can still conduct audits, issue notices of tax deficiency, demand tax returns, and assess taxes due. They generally cannot, however, initiate tax collection actions.
Evictions (Post-Judgment): If the landlord secured a judgment for possession of the property before the bankruptcy filing, the stay generally does not stop the eviction process. You can read more about the eviction forms used in bankruptcy via this link. A video explanation is available at the end of the article.
The Creditor’s Counter-Measure: Motion for Relief from Stay
The most significant risk to the Automatic Stay is a creditor’s successful Motion for Relief from the Automatic Stay (362(d)).
A secured creditor (like a mortgage lender or car lender) can ask the bankruptcy court to terminate or “lift” the stay for their specific debt. The court typically grants this relief if the creditor can show either:
“Lack of Adequate Protection”: The property (the collateral) is declining in value, and the creditor’s interest is not adequately protected.
“No Equity and Not Necessary for Reorganization”: The debtor has no equity in the property (they owe more than it’s worth) or the property is being surrendered, which is often the case in Chapter 7 filings.
If the court grants the motion, the creditor is then free to proceed with their collection action, such as scheduling a new foreclosure date. This is why immediate, strategic timing is critical.
The Professor’s Strategic Takeaway
The Automatic Stay might buy the time you need. Do not waste it! The purpose of the stay is to provide temporary relief to get organized and take the steps that work best for your financial situation.
Considering the legal strategy involved, you should rely on an experienced bankruptcy attorney.
Professor Hernandez is an attorney specializing in consumer finance and debt relief. He is the published author of Consumer Bankruptcy Law (Routledge Publishing) and teaches law and finance courses in both English and Spanish for an international university.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.
You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.