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The bankruptcy automatic stay isn't foolproof

One of the primary goals of filing for Chapter 7 bankruptcy is stopping harassment from your creditors. Once you file, an automatic stay goes into effect that prevents them from continuing any collection efforts until the conclusion of your case. This gives you the freedom to work out your financial issues without any interference and stress from creditors or collection agencies.

The above description represents the best-case scenario. Yes, the automatic stay does prevent certain actions, but it does not prevent others. Understanding what it can and cannot do will help you better understand what you face as you file for bankruptcy protection.

The relief you can expect

With some notable exceptions, the automatic stay does the following for you:

  • It stops a foreclosure, but if you cannot catch up and continue on-time payments, the proceedings give you time to vacate the home and find somewhere more affordable to live. As an added bonus, the bankruptcy should eliminate any further obligations to pay the mortgage loan.
  • It stops any lawsuits filed against you from progressing. If the debt associated with the litigation is part of your discharge, one cannot re-file the lawsuit. 
  • It stops repossessions, but only temporarily. You will need to either catch up on or continue making your payments in order to keep the property.
  • It stops your landlord from evicting you, but only temporarily if you cannot make your current and missed rental payments. At the very least, you gain some extra time to find another place to live.
  • It stops utility companies from cutting off your service, but you will need to make your payments soon.
  • It stops garnishments of your income, at least until the completion of your case.

Under certain circumstances, the bankruptcy court may grant a creditor the right to continue collection efforts. The creditor will file a Motion to Lift Stay, outlining the reasons why the court should lift the automatic stay, and the court may grant that request under particular circumstances.

The relief you can't expect

You need to know that, under certain circumstances, such as those listed below, the automatic stay does not apply:

  • It does not stop court proceedings or interfere with orders regarding child support or alimony.
  • It does not erase loans taken from your pension or retirement account.
  • It does not stop any criminal proceedings you face.
  • It does not stop proceedings by government agencies such as an IRS audit.
  • If you file two bankruptcy cases within a year, the automatic stay only lasts 30 days.
  • If you file three bankruptcy cases within a year, you do not get the benefit of an automatic stay.

These are not the only reasons why you would not receive the benefits of the automatic stay. The circumstances surrounding your particular case could affect it.

If you wonder whether the automatic stay would or would not apply to a situation in your case, your best bet would be to schedule a consultation with an Iowa bankruptcy attorney to get an answer to that and other questions you may have regarding the Chapter 7 bankruptcy process.

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