How a Crystal Lake Bankruptcy Stops Your Creditors: The Automatic Stay

Filing for bankruptcy triggers something called an “automatic stay,” which halts most actions that creditors can take. However, automatic stays cannot prevent everything, and it is important to know what they can and cannot stop.

Crystal Lake Bankruptcies - What the Automatic Stay Can Prevent

The automatic stay can impact many different types of collection actions. For instance:

  • The automatic stay can hold off a pending foreclosure, at least for a little while. But, unless it is a Chapter 13 bankruptcy, the court will eventually allow the foreclosure to continue.
  • The automatic stay may also buy some time during an eviction proceeding since in some cases the landlord will need to ask the court to lift the stay to continue with the eviction, which can take days or weeks to accomplish. However, the landlord will have an easier time accomplishing this if they can convince the court that the tenant is using controlled substances in the property or otherwise endangers it.
  • Wage garnishments also stop once the automatic stay becomes effective.
  • Ordinarily, utility companies can discontinue your service following missed payments, but the automatic stay can force them to keep the lights on for at least 20 days.
  • Automatic stays also affect public agencies. They cannot attempt to collect back any overpayments that they may have made to the filer so long as the automatic stay remains in effect.

Crystal Lake Bankruptcies - What the Automatic Stay Cannot Prevent

However, automatic stays will not prevent every collection action.

  • The stay only stops some tax-related actions. The IRS can still demand payment from you, or audit you, but they cannot seize income or property from you during the duration of the stay.
  • Actions to recover or alter alimony and child support also continue through bankruptcy’s automatic stay.
  • The stay also does not affect criminal proceedings. A criminal case will continue unhindered, and the stay will not stop non-monetary punishments, like community service.
  • The automatic stay also allows for income withholding in the event that a person took a loan from their pension that they need to repay.
  • The effects of the automatic stay also change in the event that a person already filed for bankruptcy recently. If someone files for bankruptcy within one year after the last time they did so, then the stay only lasts for 30 days. This happens because the court assumes that the person did not file for this new bankruptcy in good faith, but if the person can prove that this second bankruptcy is bona fide, then they may secure a longer automatic stay for themselves.

How Creditors Can Get Around the Automatic Stay Following a Bankruptcy in Crystal Lake, IL

Creditors can choose to fight the stay if they think they have a good reason for the judge to lift it. If, for instance, a person filed for bankruptcy right before their mortgage-holder sells their house in foreclosure, and they do not have the means to recover it, then the creditor can come to the court to argue that the judge should lift the stay by saying that it is not serving its purpose. Note that this only eliminates the stay’s protection in this one particular instance. The judge’s lifting it for one creditor would still leave the others bound by it.

For help with bankruptcy questions, please contact us at Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.

  • Newland & Newland LLP, Attorneys, Arlington Heights, IL