Filing for bankruptcy typically triggers an automatic stay, which halts most collection actions from creditors. However, there are critical exceptions where the automatic stay does not apply.
If you are filing for bankruptcy, it is important to know when the automatic stay might be unable to help you or when creditors can request a court to lift it. This is especially relevant if you are facing a possible foreclosure.
Foreclosure due to prior bankruptcy filings
If a homeowner has filed for bankruptcy multiple times in a short period, the automatic stay may not go into effect. When someone files a second bankruptcy case within one year of a prior dismissal, the automatic stay will only last for 30 days unless extended by the court. For a third filing within that timeframe, a party must file a petition to request an automatic stay with the courts.
Foreclosure following a motion to lift the stay
A creditor can file a motion with the bankruptcy court to lift the automatic stay. If the court grants this motion, the foreclosure process can resume. For example, if a homeowner has failed to make mortgage payments even after filing for bankruptcy, the lender may argue that the stay no longer serves a valid purpose.
Debts not covered by the bankruptcy case
Certain debts, such as recent tax obligations or debts secured by specific liens, may not fall under the protections of the automatic stay. In some cases, creditors can continue collection efforts despite the bankruptcy filing. If a foreclosure involves a lien tied to one of these exceptions, the automatic stay may not stop the foreclosure process.
Actions involving criminal proceedings
The automatic stay does not halt criminal proceedings. While foreclosure is a civil matter, homeowners should be aware that if the foreclosure involves criminal violations, such as fraudulent actions connected to the mortgage, the automatic stay will not provide protection.
New Jersey homeowners must recognize the limits of the automatic stay to protect their rights effectively. Preparing for exceptions during the bankruptcy process can help you avoid unexpected complications during your financial recovery.
