The automatic stay immediately stops all creditor actions upon the filing of a bankruptcy case. There are numerous exceptions, though those exceptions are not applicable in most bankruptcy cases. After a period of time, Creditors are usually given the opportunity to seek relief from the automatic stay to continue their collection efforts.
The automatic stay is one of the fundamental protections for a debtor in bankruptcy. Unlike much in the Bankruptcy Code, it the automatic stay does precisely what you might think: it “stays” or “stops” creditors. When does it stay or stop creditor activity? “Automatically.”
Put into practice, the automatic stay will stop a creditor’s activities immediately upon filing the bankruptcy case. To name just a few of the nine broadly construed protections, creditors are stopped from continuing lawsuits against the debtor, repossessing property, or creating liens on the debtors’ assets.
Like most things in the law, there are exceptions. In fact, there are a bunch of exceptions (way too many to get into here). Most of the exceptions, though, are quite narrow and have limited application to most bankruptcy cases. Some exceptions have broader application, such as when a debtor may file several bankruptcy cases in a short period of time the stay may never apply at all.
Because bankruptcy attempts to strike a balance between protecting the interests of both debtors and creditors, creditors are not without their remedies. In many instances, creditors (or other interested parties) are allowed to seek “relief” from the automatic stay; that is, obtain a judicial ruling that the automatic stay does not or should not preclude them from collection activities. Specific stay relief grounds are well beyond the scope of this post and is something we will cover in a future entry (or, likely, multiple entries).