When a bankruptcy petition is filed, an injunction goes into place. This injunction is called the automatic stay. The automatic stay prevents creditors from collecting debts that were incurred before the bankrutpcy case was filed. It goes into effect the minute the case is filed. In fact, the notice of bankruptcy filing provided to every creditor listed in the bankruptcy has a time stamp showing the time of day the case was filed.
The automatic stay stops foreclosure of homes, repossession of vehicles, telephone calls from creditors, liens being attached against property, wage garnishment, and many other types of debt collection activity. Creditors who violate the automatic stay may be sued in the bankruptcy court by the debtor. These creditors may be liable for actual damages, punitive damages, and the debtor’s attorney’s fees.
The automatic stay is present in both Chapter 7 and Chapter 13 bankruptcy cases. The automatic stay continues in effect until the debtor is discharged from bankruptcy, the bankruptcy case is dismissed, or until the court lifts the automatic stay in response to a creditor’s motion.
Discharge occurs when the bankruptcy case is successfully completed by the debtor. Early dismissal usually occurs in Chapter 13 cases because a debtor missed payments to the bankruptcy trustee and did not cure the arrears by making up these payments. The automatic stay may be lifted in some cases if the debtor fails to keep secured property insured or does not make payments when the Chapter 13 plan states that the debtor will make payments directly to the creditor.