Bankruptcy offers many ways in which a financially strapped family in New Jersey can defend itself from the efforts by creditors to collect on delinquent accounts. One of the most powerful protections is offered by the simple act of filing the petition. Under the federal Bankruptcy Act, filing the petition invokes an order from the bankruptcy court that immediately stops all collection efforts. This order is known as the “automatic stay,” and anyone considering filing a bankruptcy petition should understand how it works.
The issuance of the stay
A “stay” is a legal term for an order from a court that halts all proceedings described in the order. In a bankruptcy proceeding, the filing of the petition with the court automatically operates as a stay of all efforts by creditors to collect on debts that were due as of the date of filing. The stay applies to virtually all legal actions to collect a debt, proceedings to foreclose a mortgage lien, any effort to create, perfect or enforce any lien against the property of the debtor, or other efforts to enforce the claim of a creditor against the debtor.
The stay by its terms applies only to legal proceedings intended to enforce a debt. Thus, the stay prevents the mortgagee from pursuing any proceeding to enforce the mortgage lien, but the stay does not by itself lift a mortgage lien against a family’s residence. The lien, however, remains in place until the bankruptcy proceeding is completed. The debtor can often use the extra time provided by the stay to negotiate a settlement with any creditor that holds a secured debt, such as a car loan. The automatic stay does not apply to criminal proceedings and most family court matters.
Consult an attorney
The effect of the automatic stay can vary slightly from case to case, and anyone interested in trying to invoke the stay should seek advice from an experienced bankruptcy lawyer. A knowledgeable attorney can explain how the stay works, how it will affect creditors’ claims, and whether any claims may be exempt from the effect of the stay.
