What Are the Limitations of the Automatic Stay in Bankruptcy?

 Posted on October 18, 2024 in Automatic Stay

When someone files for bankruptcy in Texas, they trigger a law in the U.S. Bankruptcy Code referred to as the automatic stay. This federal regulation protects the bankruptcy filer against creditors and takes immediate effect when he or she files for Chapter 13 or Chapter 7. It gives the debtor some respite and breathing room throughout the bankruptcy proceedings.

However, the automatic stay is not a catch-all solution that safeguards the debtor against all creditor claims. This article will discuss what the automatic stay is and its limitations. If you are considering filing for bankruptcy or you want more information about the process, contact an experienced Texas bankruptcy attorney.

What Is the Automatic Stay?

According to Section 362 of the U.S. Bankruptcy Code, the automatic stay is an injunction that goes into effect as soon as someone files for Chapter 7 or Chapter 13 bankruptcy. It stops creditors from pursuing their claims against the debtor while the bankruptcy proceedings take place. If the case is dismissed, the automatic stay ceases to be in effect.

The automatic stay is a kind of "freeze" on creditors’ claims so that they cannot take action against the debtor. For example:

• They cannot collect their debts by having the debtor’s wages garnished.
• If the creditor is a utility company, it cannot cut off the debtor’s utility services.
• If the creditor is a landlord, he or she cannot initiate eviction proceedings against the debtor for lack of payment.
• If the creditor is a lender, it cannot foreclose on the debtor’s house.

The automatic stay also stops collection efforts by creditors so that they cannot call you or send you demand letters. You may be able to sue certain creditors who violate the automatic stay.

What Are the Limitations of the Automatic Stay?

The automatic stay is a great legal remedy that temporarily protects bankruptcy filers, but only up to a point. Here are some limitations of the automatic stay:

• Ongoing evictions: If a landlord initiated eviction proceedings against you before you filed for bankruptcy, he or she may not be confined by the automatic stay and may be allowed to continue pursuing eviction.
• Criminal proceedings: If you owe money as a result of a criminal action, such as embezzlement, or if you were ordered to pay a fine as a penalty for an offense you committed, the automatic stay will not relieve you of that obligation.
• Alimony or child support: If you have been ordered by a divorce court to pay alimony or child support, the automatic stay will not freeze the order. You will likely be required to continue making payments.
• Tax proceedings: The automatic stay will not protect you from tax proceedings such as audits or demands from the IRS. It can, however, prevent the IRS from seizing your income or placing a lien on your property while the bankruptcy proceedings are ongoing.

Contact a San Antonio, TX Bankruptcy Attorney

The automatic stay is a powerful legal tool that can help protect a debtor who is being pursued by creditors, but only in some cases. At the Law Offices of Chance M. McGhee, we will guide you through the bankruptcy process and advise you when the automatic stay can assist you. We will use our extensive experience in bankruptcy law to help you create a personalized legal strategy. Schedule a free consultation with a New Braunfels, TX bankruptcy lawyer by calling 210-342-3400 today.