Financial Literacy Series: What is an Automatic Stay?

Most Americans love to have as much credit as possible because it makes life so much easier. Credit is a double-edged sword, however, because it can tempt to people into living beyond their means. When this happens, it’s easy to start defaulting on debt repayment plans, which may lead to declaring personal bankruptcy down the line.

As part of the bankruptcy process, something called an “automatic stay” is put in place to stop all credit collection proceedings while the person’s bankruptcy and financial situation is figured out.

What Is an Automatic Stay?

Implementing an automatic stay in bankruptcy is a critical and early step in a person’s process of declaring bankruptcy.

But what is an automatic stay? It’s basically a type of injunction, which protects a person’s assets and income while the bankruptcy court determines how the person should proceed financially.

An automatic stay in bankruptcy puts a stop to creditors’ attempts to get the money they are owed, whether it’s through relentless phone calls, lawsuits, the garnishing of wages or any other means of debt collection. An automatic stay has no bearing on the eventual outcome of a person’s bankruptcy process, but it does is create breathing room for the bankruptcy court to straighten things out.

Needless to say, creditors take a pretty dim view of an automatic stay since it forbids them from getting their money back — at least temporarily. The upside of bankruptcy for creditors is that it could very likely end up with each one getting at least something back, as opposed to just one creditor getting all the person’s assets and the other creditors getting nothing.

To learn more about automatic stays, debt collection, creditors and bankruptcy as a whole, be sure to consult with a financial professional. He or she can advise you on how to avoid bankruptcy and automatic stays, as well as give you their professional opinion should you already be at the bankruptcy phase.