What Is The Automatic Stay?

The automatic stay is really the foundation upon which bankruptcy is build.

You have heard of an injunction. It is a process or order of a court (a judge) that requires a person or company or corporation or a creditor to whom it is directed to do a particular act or to refrain from doing a particular act. In a bankruptcy context the term “stay” means the same thing as an injunction. It is essentially an order or command of the bankruptcy court to your creditors or anybody or company that has an interest in your property to stop whatever they are doing to take your property or to get your money.

You might have also heard it called a “protective order”. This is a civil (as opposed to a criminal) court order issued to prevent continuing acts against you and your property. Whether it is called a stay, injunction or protective order it is essentially the same thing. It is a powerful order or requirement, and if it is disobeyed by your creditors and other parties there can be serious consequences for the party violating the stay.

The stay or injunction is automatic because you do not have to wait to for a judge to have a hearing on the injunction or to sign the injunction or to spell out the terms of the injunction. The law puts it in place immediately upon filing bankruptcy. The automatic stay is found in 11 U.S.C. § 362(a) of the Bankruptcy Code. What makes the automatic stay so powerful is that you do not have to wait on a judge to set a hearing or to issue the injunction. There are a few exceptions, but almost always the injunction is automatically issued when you file bankruptcy. Then all your bankruptcy attorney or the court has to do is make sure your creditors or those bound by the injunction know you have filed bankruptcy. No other explanation has to be provided to your creditors or any other party as to what the stay or injunction means.

As I stated, there are exceptions. If you file bankruptcy for the first time in period of over a year the automatic stay is exactly that. It goes into place and your protections are immediate. It stays there until the Court is asked by a creditor to hold a hearing to determine if there is any reason to lift the order. Most often creditors do not ask for this relief. When they do the stay or injunction is not often lifted or amended. However, if you have filed more than one bankruptcy in less than a year the automatic stay still goes into place automatically, but it only lasts for 30 days. Your attorney will need to get extended for you. And, although rare, if you have filed bankruptcy more than twice in a one year period there is no automatic stay, but you can still file bankruptcy and the Court can hold a hearing and establish one for good cause. Sometimes the temporary loss of a job or illness can cause this to happen.

The automatic stay also lifts or ends when your bankruptcy is discharged. By discharged I mean that you have successfully completed your bankruptcy. This is so because the bankruptcy court will replace the automatic stay with a permanent injunction or protective order that will last forever. This is called the “discharge injunction”. You will also hear it referred to as the “discharge order”.

The automatic stay is not self-enforcing, however. This means to say there is nobody out there that has a constant lookout, watching to see if one of your creditors or other from whom you are protected is obeying the automatic stay like they are suppose to do. After all, there is really nothing that the attorney can do to prevent a creditor from violating a court order except to put them on notice because nobody knows that the automatic stay has been violated until it has been violated. All your attorney (and the bankruptcy court for that matter) can do is punish the creditor after the fact for violating the automatic stay. That is the reason Congress and the President established 11 U.S.C. § 362(k). Although it is generally not a good thing if a creditor violated the automatic stay, this is a powerful provision that allows you to file a complaint with the court to let the court know what has happened. This provision allows the court to award to you the actual damages caused by the creditor’s violation, as well as your attorneys’ fees in having to bring it before the court for its attention. If the court finds the violation egregious, the bankruptcy court can also award what are known as “punitive damages”. These are not the damages you actually suffered, but these are damages to punish the creditor. It is rare that a bankruptcy court awards any large amount of punitive damages, but it does happen.

Often times your bankruptcy lawyer will not handle this procedure, called an “adversary proceeding”. An adversary proceeding is similar to a lawsuit filed in your bankruptcy. The difference is that the creditor or party violating the automatic stay is typically not allowed a jury trial. Only the court or judge decides the issue. Your bankruptcy attorney does not often represent you because the bankruptcy attorney is sometimes a witness as to the violation. Often it is your bankruptcy attorney that can establish that the creditor or other party had actual notice and knowledge that you had filed bankruptcy. Most courts will not let your bankruptcy attorney be both a witness and your attorney. This does not mean, however, that your bankruptcy stops representing you in your bankruptcy. That is his responsibility. He just does not represent you in this special matter.

There are a few attorneys and law firms out there that just handle automatic stay violations in those few instances when they happen. We typically refer these matters, for example to Chuck Newton. He operates a virtual law firm out of The Woodlands, Texas that will represent debtors who have had the automatic stay in their cases violated. I will of course work closely with him. You can view his website and blog by CLICKING HERE.