When people in Louisiana and around the country file personal bankruptcies, the judge handling the case issues what is known as an automatic stay. This is a court order that prohibits creditors from attempting to collect debts from individuals who have filed for bankruptcy until the case is resolved, and it goes into effect as soon as the paperwork is filed. Automatic stays protect consumers from daily harassment from creditors and bill collectors, and they can also prevent foreclosures, evictions and wage garnishments and put a halt to debt-related litigation.
Protecting consumers and creditors
Automatic stays protect creditors as well as people who file for bankruptcy. This is because they place all interested parties in the same situation and prevent any single creditor from seizing assets before a judge has reviewed the facts and determined the appropriate course of action. An automatic stay does not apply to child and spousal support obligations and cannot prevent the IRS from seizing tax refunds, but it does prevent banks, credit card companies, utility providers and landlords from taking action to collect debts, shutting off water, gas or electricity supplies or evicting tenants. Automatic stays remain in effect until the bankruptcy proceedings end. This is usually three or four months in Chapter 7 cases, but it can be as long as five years in a Chapter 13 bankruptcy.
Violating an automatic stay
Creditors that violate automatic stays face harsh penalties. In addition to being ordered to pay the consumers legal fees and compensate them for any financial losses they suffer, creditors that violate automatic stays may be ordered to pay punitive damages. Creditors may petition the court for relief from an automatic stay, but these petitions are rarely granted. When they are granted, it is usually because the debt involved is secured by an asset that will likely depreciate significantly during the bankruptcy proceedings.
An end to creditor harassment
Automatic stays protect individuals who file bankruptcies from foreclosures, evictions and wage garnishments and put an end to harassing calls from debt collectors. These court orders establish a level playing field for creditors, and they remain in effect until Chapter 7 or Chapter 13 cases are resolved. Creditors can ask the court to exclude them from automatic stays, but these efforts are rarely successful.