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How the automatic stay works in bankruptcy

On Behalf of | Feb 17, 2022 | Personal Bankruptcy

If a consumer in Michigan gets overwhelmed with debt, they may decide to file for bankruptcy. Consumers commonly choose to liquidate through Chapter 7 or repay debt through Chapter 13. Both have the benefit of the automatic stay.

How the automatic stay works

The automatic stay is an injunction in the personal bankruptcy code that prohibits creditors from pursuing collection action temporarily. It is activated immediately after the consumer files the petition and remains active until the discharge or dismissal.

Under Chapter 13, the automatic stay commonly lasts three to five years, and under Chapter 7, the stay lasts four to six months. If the consumer files a bankruptcy case with a pending case in the previous year, the stay only lasts 30 days. There is no protection from the stay if the consumer has two pending cases from the previous year.

The automatic stay helps keep past-due utilities on for a minimum of 20 days and stops foreclosure and certain wage garnishments. While eviction proceedings are halted, if the landlord has already filed a judgment against the consumer, the case may proceed.

When creditors object to the automatic stay

A creditor may ask for a lift if they suspect fraud, or there is litigation in another court or tenant-landlord conflicts. If a consumer is behind on mortgage payments in Chapter 7 and the home has no equity, the creditor may ask for a lift.

The filer commonly has 14 days to answer a motion to lift it, or the court will approve the request by default. To prevent lifting of the stay automatically, the filer should include their plans with the property on the Statement of Intentions. They must respond by paying the creditor the current value, reaffirming the debt or surrendering the property within 45 days.

The automatic stay doesn’t protect against all debts, such as domestic support or debt from criminal actions. A consumer should consider bankruptcy carefully since it impacts their credit for several years.