You can’t talk to a bankruptcy lawyer for very long before the phrase “automatic stay” pops out of his mouth. And that’s a very good thing, because the automatic stay is one of the most powerful concepts in the bankruptcy code, and one of the most important from the debtor’s point of view.
But “automatic stay” is an awkward term, one that regular folks usually don’t throw around out by the barbecue. To simplify things just a little, I tell my clients to think in terms of an “automatic freeze” instead.
When a consumer files a bankruptcy case, all collection actions against them are frozen. Creditors can’t call you to collect their debts. Collection agencies can’t either. They can’t write you letters, send demands for payment. They also can’t sue you to collect the debt. If they already have sued you, that case is now “frozen,” and grinds to a halt. Foreclosures are also frozen, and wage garnishments prohibited.
In other words, it is this freeze (or “stay” if you are a bankruptcy attorney) that provides most of the immediate benefits of a bankruptcy filing. The stay typically lasts for the duration of the bankruptcy case, though there are some important technical exceptions to that rule.
As for the “automatic” part, it is just like it sounds: the stay goes into effect as soon as your case is filed, without the necessity for additional motions, hearings, pleadings, or waiting. This is the reason why I often say that you get the benefits of filing a bankruptcy as soon as a case is filed with the court.
So you see, bankruptcy lingo is often a bit awkward, but a little knowledge of it can really help you understand how powerful the bankruptcy code can be for people with debt and credit problems.
By Doug Beaton