Automatic Stay | Propertylogy

Automatic Stay

By on July 14, 2019

An automatic stay is a bankruptcy rule which demands that all creditors cease actions to collect their debt from the debtor in question.

This breathing space commences when the debtor has filed for bankruptcy, and is often what is known as bankruptcy protection.

Creditors who persist in harassing the debtor for their owed funds can actually be sued by the latter.

While this is sometimes seen as unfair to creditors who are owed money and gives a debtor an undeserving protection, it also give all creditors a fair chance to get some of their money back.

For example, if there is no automatic stay, then the first few creditors who pursues the debt and gets it might mean that there would be little to no money left for other creditors who have yet to start any legal proceedings against the bankrupt.

Some creditors might not even know of a debtor’s precarious financial situation to take any action towards collection.

The absent of automatic stay would likely mean that by the time such creditors get informed of the bankruptcy of the debtor, it would already be too late to get any money back.

However, should a court find that a bankruptcy was filed in bad faith, the right to automatic stay could be overruled.

By the letter of the law, an automatic stay would last for the duration of the bankruptcy.

But creditors can sometimes be granted special permission to life the automatic stay and proceed with debt collection if they can prove that their actions and the desired results of such actions would not compromise the interest of other creditors.

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