What is an Automatic Stay in Chapter 7 Bankruptcy?

It is difficult to find any other type of court action a person or entity can file in an American court which has the kind of effect the automatic stay has in bankruptcy cases, including Chapter 7 actions. This feature of Chapter 7 cases makes the idea of filing such a case particularly attractive. What is the “automatic stay” and what kind of effect does it have?

Simply put, the automatic stay in bankruptcy immediately prevents creditors from taking actions to collect debts that the person filing a Chapter 7 case may possess. When a Chapter 7 case is filed, the bankruptcy court automatically issues an automatic stay to provide this protection to the bankruptcy debtor. In some instances, creditors may already have undertaken collection efforts. After the bankruptcy case is filed, notice that the stay is in effect is sent out to each of the creditors listed on the Debtor’s schedule of debts which the Debtor must file in the case.

If a creditor has threatened to take the Debtor to court before the filing of the bankruptcy case, that creditor can no longer follow through on the threat. If a case has already been filed by a creditor, then the creditor must go ahead and inform the court where that case is pending, that an automatic stay has been entered. Such a case – or at least the particular claim against the Debtor – cannot go forward at that juncture.  Nor can garnishment actions to take part of the Debtor’s wages or bank account proceed.  Any actions by a mortgage holder to foreclose on the Debtor’s home or any action for eviction by a landlord must also cease.   

There are other types of actions which also will be stayed while the bankruptcy case proceeds. Some creditors may seek relief from the automatic stay. The Debtor should discuss with his or her bankruptcy attorney whether any creditors may have a strong chance of obtaining such relief. Once the bankruptcy court exempts a claim from the automatic stay, the creditor holding that claim can re-institute collection procedures.

In Albuquerque, Giddens & Gatton Law, P.C. has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases and can specifically provide advice as to disposition of property in Chapter 7, Chapter 11 and Chapter 13 cases..

The New Mexico firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, P.C. at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.