Indiana Bankruptcy Blog

What Does Automatic Stay mean?

The “automatic stay” in bankruptcy can be described like an invisible shield that instantly protects you from all your creditors when you file for bankruptcy.   Each bankruptcy case is accompanied by this automatic stay under Section 362 of the bankruptcy code.  Understanding the automatic stay concept only requires some simple explanations.

First, the “automatic” stay is automatic.  This means, as the word implies, that it will go into effect immediately upon the filing of the bankruptcy case.  It is “automatic” in the fact that it just happens on its own: no further usage of the law is required.  You will have the automatic stay protection instantly when your case is filed.

Second, let’s look at the “stay” part of the word.  The automatic stay operates as a “stay” to all your creditors.  That means that they cannot move or take any action against you to collect.   The best way to think about this is to think when you tell an attack dog to “stay.”  In bankruptcy, there is automatically an operation of law that tells all your creditors (similar to a dog about to attack) to “STAY.”   This, of course, is only an illustration: most creditor institutions are very friendly and accommodating, making it obvious that this is only an illustration.

To further illustrate the “stay” concept, think “Shakespeare.”   During Shakespeare’s time, the concept of the word “stay” could be used actively instead of passively.   Think of the main character in a Shakespeare play exclaiming, “Stay Yourselves!,” using the word in the active sense.  The bankruptcy court exclaims “Stay Yourselves” to all of creditors in the bankruptcy.  The creditors can then take no further action.

Third, let’s briefly clarify what the “stay” in bankruptcy shuts down with creditors.  Essentially, the creditors can take no further action to collect against you.   Therefore, no calls, garnishments, lawsuits, money freezes, sales of property – or any other form of collection – can continue.  If the creditor continues any form of collection, they can be subject to fines and prosecution through the bankruptcy court.

To summarize, understanding the concept of the automatic stay in bankruptcy is essential to understanding how bankruptcy works. Although your debts are quickly eliminated in Chapter 7 bankruptcy, it is essential that all creditor activity stops.   This stopping of creditor activity allows bankruptcy to work.  It allows the bankruptcy court to carry out their activities.  It allows debtors to be protected until they receive their release from their debts.