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What is an Automatic Stay?

On Behalf of | Apr 6, 2020 | Bankruptcy

When a person files for Chapter 7 bankruptcy in Iowa, creditors are automatically barred from pursuing any further action against that individual. This is known as an automatic stay and is an important aspect of the bankruptcy process, as it allows petitioners to resolve their bankruptcy issues without being harassed by creditors with competing claims. To learn more about the automatic stay and your own protections under federal bankruptcy law, please contact an experienced Iowa chapter 7 bankruptcy lawyer who can advise you.

Chapter 7 Bankruptcy Proceedings

Chapter 7 bankruptcy proceedings begin when a person files a Chapter 7 bankruptcy petition and pays the appropriate fee. This filing is actually a collection of documents and includes not only the petition, but a variety of other supporting documents. Eventually a trustee will be assigned to the case, who is tasked with gathering and selling all of a petitioner’s non-exempt property. The proceeds from this sale are then used to pay off creditors.

The Consequences of an Automatic Stay

The filing of a Chapter 7 petition also acts as an automatic stay on most collection actions. This means that creditors are legally barred from taking certain actions in regards to a petitioner or his or her property. As long as the stay remains in effect, creditors and collection agencies will be prohibited from:

  • Initiating or continuing a lawsuit;
  • Garnishing a petitioner’s wages;
  • Placing telephone calls or writing to petitioners demanding payment;
  • Issuing bills to a petitioner;
  • Initiating or continuing foreclosure proceedings; or
  • Repossessing a petitioner’s property.

It’s also important to note, however, that filing a Chapter 7 bankruptcy petition doesn’t stay all creditor actions. In other cases, a stay might be effective for only a short time, making it especially important for those who are considering filing for Chapter 7 bankruptcy, to speak with an attorney who can advise them as to their legal rights and options.

Exceptions to the Automatic Stay

The automatic stay that goes into effect upon the initiation of bankruptcy proceedings only bars creditors from taking further action against the petitioner. Certain other kinds of legal actions, however, such as criminal proceedings, will still continue, as will:

  • Paternity actions;
  • Child custody proceedings;
  • Alimony actions; and
  • Child support enforcement claims.

Creditors are sent notice of bankruptcy proceedings by the court, so if they violate the automatic stay, they can be held liable for damages.

The automatic stay will generally remain in place until:

  • A person’s case is closed;
  • A petitioner’s case is dismissed;
  • A petitioner’s discharge is denied; or
  • A debtor’s discharge is granted.

Although most creditors are aware of their limitations in regards to an automatic stay, it is also not uncommon for some creditors to request that the court lift the stay. If, for instance, a secured creditor was about to repossess a person’s collateral, such as a vehicle, immediately prior to the petitioner’s filing, due to that person’s failure to make multiple car loan payments, the lender could ask the court for permission to repossess the property. Similarly, the automatic stay usually temporarily stops eviction, but if a landlord already has a judgment of possession in a specific eviction case, the debtor’s eviction will most likely proceed. Otherwise, any actions taken in violation of the automatic stay and without the permission of the court are considered void as a matter of law.

Set Up a Consultation with an Experienced Chapter 7 Bankruptcy Lawyer

If you are considering filing for Chapter 7 bankruptcy and have questions about your own legal protections from creditors, please call the Telpner Peterson Law Firm, LLP to speak with an experienced Iowa bankruptcy lawyer. A member of our team can be reached at 712-309-3738 or via online message.