The Automatic Stay
The instant a voluntary Bankruptcy case is filed, the Automatic Stay is effectuated. The Automatic Stay prohibits any Creditor's act to obtain, from the Bankruptcy Filer, money or other property. All law suits are immediately stopped. No Creditor may take any action to contact a Bankruptcy Filer; even to simply ask the Debtor to pay what they might consider a valid debt. The phone calls, letters, law suits, and repossession efforts must cease. A Creditor, or even those acting at the Creditors request, which knows of the Bankruptcy Filing (and, thus, the Automatic Stay) and ignore it may be held in Contempt of Court and severe penalties/fines may be imposed. Property seized from a Bankruptcy Filer; such as, repossessed autos, tools, machinery, equipment, wages, money in bank accounts and other items must be timely returned. Most importantly, the Automatic Stay automatically stops any foreclosures and sheriff's sales and can result in the Bankruptcy Filer retaining their home or other real estate.
The Automatic Stay does not stop criminal prosecutions against Bankruptcy Filers who have violated the criminal or motor vehicle laws. The Automatic Stay does not affect proceedings to require or enforce the payment of child support, alimony or other types of divorce proceedings; however, certain types of proceedings to determine how property acquired during a marriage is divided among spouses (equitable distribution) may require the permission of the Bankruptcy Court.
The purpose of the Automatic Stay is to afford the Bankruptcy Filer time so that decisions in Chapter 13 and Chapter 11 Bankruptcy cases can be derived as to how to reorganize finances. In Chapter 7 Bankruptcy cases, the Automatic Stay protects the Bankruptcy Filer's exempt property and gives the Trustee the opportunity to evaluate the assets held by the Bankruptcy Filer without any interference from any Creditors. The Automatic Stay is the equivalent of an injunction; i.e., a Court Order prohibiting or commanding some action.
Creditors may file a Motion requesting relief from the Automatic Stay within the Bankruptcy Court to obtain permission to continue law suits to recover money or take property from the Bankruptcy Filer or Trustee.