Automatic Stay in Bankruptcy
One of the protections when filing for bankruptcy is the automatic stay. A common protection sought in bankruptcy protection is the protection of the automatic stay.
The bankruptcy automatic stay arises when a bankruptcy petition is filed. There is no distinction if the petition is filed by a company itself or an individual person.
The automatic stay operates as a stay (a statutory injunction) against almost all collection actions by creditors against a debtor and the property based on money owed existing before the bankruptcy petition was filed. It is called the automatic stay because this arises automatically when the bankruptcy paperwork is filed with the court and does not need any court order. Among the actions stayed are: lawsuits, repossessions of assets, foreclosure sales, collection calls and notices, etc.
Creditors should avoid a violation of the automatic stay. Violating the automatic stay is serious business. The actions in violation of the stay generally held to be void, but in some cases creditors may be exposed to a claim for damages or even punitive damages.
Creditors may ask the court for relief from the automatic stay and be allowed to file a lawsuit or for a foreclosure sale to take place. While such “relief from stay” is occasionally granted, more often the request is denied.
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