What Is a Automatic Stay in Bankruptcy?

One of the most powerful features of bankruptcy is the automatic stay which is a court order that protects you from collection actions by creditors.

The automatic stay goes into effect as soon as you file for bankruptcy. It stops most creditors’ dead in their tracks and keeps them at bay for the rest of your case. Once you file for bankruptcy, all collection activity must go through the bankruptcy court. Most creditors cannot take any action against you directly while your case is pending.

The purpose of the automatic stay is, in the words of Congress, to give debtors a “breathing spell” from their creditors, and a break from the financial pressures that drove them to file for bankruptcy. In chapter 7 bankruptcy it serves another purpose as well: to preserve the status quo at the time of you file.

If your business is a sole proprietorship, you and your business are considered a single debtor. If you file for Chapter 7 personal bankruptcy, the automatic stay will apply to both your personal and your business creditors, and the stay should stop all collection efforts against you, at least temporarily.

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