What is the Automatic Stay?

If you are considering filing for bankruptcy in the state of Oklahoma, you will become familiar with the term “automatic stay.” After you file for bankruptcy, the automatic stay, which is a federal injunction, immediately stops collection efforts by creditors against the debtor(s). The stay applies to every court in every jurisdiction. The stay prohibits collection attempts on all secured and unsecured debts acquired before the filing. The stay can stop or suspend foreclosure proceedings, vehicle repossessions, setoffs, garnishments, civil litigation proceedings, student loan collections, and even IRS collection efforts. However, under certain circumstances, a creditor can file a motion with the bankruptcy court to lift the automatic stay. If you are classified as “repeat bankruptcy filer” the automatic stay may not be imposed in your case. Once your case is filed, the bankruptcy court clerk will send written notice to all of the creditors listed in your petition within 48 hours of filing. Keep in my mind that it may take up to a week for every one of your creditors to receive notice as mail delivery times vary.

The Automatic Stay in Your Oklahoma Bankruptcy Can do the Following:

Stop Utility Disconnection

The stay will allow you to keep your utilities connected even if you are behind on the monthly bill. The automatic stay can prevent the disconnection of your electric, gas, water, or telephone service. It is important to keep in my mind that the utility company may use a deposit you previously posted before filing for bankruptcy to cover the unpaid balance. This is called a setoff. It is also highly likely the utility company will require you to post a new or additional security deposit to continue service in the future.  Regardless, the stay can give you time to get caught-up on your utility payments. It may even be beneficial to wait to file for bankruptcy until you are current on your utility bills.

Wage Garnishment

If your wages are being garnished to satisfy a court judgment then filing for bankruptcy in Oklahoma immediately halts these garnishments. Up to 25 percent of your take-home pay can be garnished. Generally, a garnishment will last until the specific debt is paid in full. The automatic stay could allow you to once again start taking home your entire net pay and the bankruptcy filing may ultimately end the garnishment altogether.

Stop Home Foreclosure

If your home is in foreclosure proceedings, the automatic stay will stop the foreclosure. In all likelihood, the mortgage lender will eventually be allowed to proceed with the foreclosure, but the stay could buy you additional time by temporarily halting the proceedings. If you want to keep your home, you are better off filing a Chapter 13 Oklahoma bankruptcy rather than a Chapter 7 Oklahoma bankruptcy, as Chapter 13 bankruptcy allows you to cure the mortgage default and remain in your home.

Stop Vehicle Repossession

If your vehicle is on the verge of being repossessed, the automatic stay prevents the lender from repossessing your car. However, if you file for bankruptcy in Oklahoma and you have little or no equity in the car and you have no way of catching up on the past due payments, a creditor can go to the bankruptcy court and file a motion to lift the automatic stay with regard to the car in order to allow the lender to repossess the vehicle and proceed to sell it.

Stop Eviction Proceedings

If you are renting your home, the stay can prevent you from being evicted if the landlord has not obtained a judgment for possession of the property before you filed for bankruptcy. In Oklahoma this is called a Forcible Entry and Detainer lawsuit. If the landlord alleges that you are damaging or have damaged the property or that you have been using unlawful controlled substances on the property, then the landlord may petition the court to lift the automatic stay to so the eviction can proceed.

If you are behind on your monthly rent payments, but the landlord has yet to obtain a judgment against you in state court, the automatic stay may stall the eviction proceedings for a short time. If the automatic stay does prevent you from being evicted, you will be required to pay your past-due rent and then continue to make on-time rent payments if you plan to stay in the home.

The Oklahoma Bankruptcy Automatic Stay Cannot Prevent the Following:

 It Cannot Stop Certain Tax Proceedings

The automatic stay will not prevent or protect you from an audit by the IRS. It cannot stop the IRS from demanding you file a tax return, issuing an assessment for tax that is due, or demanding payment on that assessment once it has been issued. The automatic stay will prevent the IRS from putting a tax lien on your property during your bankruptcy proceedings, seizing your bank account(s), or seizing your property.

It Cannot Stop 401(k) or Pension Plan Loan Repayments

If you have a 401(k), IRA, or pension plan loan through your employer, the automatic stay will not prevent the loan repayments from being taken out from your paycheck. In other words, these types of loan repayments continue even though the automatic stay is in place.

It Cannot Stop Divorce, Paternity, or Child Custody Proceedings

The automatic stay will not stop any divorce, paternity, or child custody proceedings. The stay will not stop any proceedings or hearings against you which are seeking to establish, modify, or collect child support or alimony. The automatic will not stop child support payments and alimony payments.

It Cannot Stop a Criminal Case That is Pending or Proceeding Against You

The automatic stay will not stop a criminal case filed against you. If you owe fines, costs, or restitution in a criminal case, the automatic stay will not stop those payments.

How an Automatic Stay Affects Your Tax Lien on Your Property

Assume the county filed a lien on your home because you did not pay your property taxes or the IRS placed a lien on your home for non-payment of income taxes. Once that lien is filed, the IRS, county, or the state can sell your property to pay the debt. The automatic stay does not apply if your tax lien is for property taxes that were due after you filed your Oklahoma bankruptcy. As an example, suppose you are filing for bankruptcy, and you owe $2,500 for property taxes, but the taxes are not due until the end of the calendar year. Even if you file for bankruptcy, and the automatic stay is in effect, it will not stop or change on the amount you owe for property taxes. The automatic stay will not apply to taxes that cannot be discharged in bankruptcy. These types of non-dischargeable taxes are called trust fund taxes and most often are only applicable to business owners. Examples of trust fund taxes are sales taxes and employment withholding taxes.

Are There Exceptions to the Automatic Stay?

There are some exceptions to the automatic stay. These exceptions only apply to repeat bankruptcy filers. The automatic stay is only in effect for thirty days after the date the bankruptcy petition is filed if you have previously filed for bankruptcy and the case was dismissed within the past twelve months. If you file for bankruptcy and have had two or more prior bankruptcy cases that were dismissed for any reason within the past twelve months, then the automatic stay will not go into effect at all. This includes debtors who initially filed under Chapter 7 and those who did not qualify under the Chapter 7 means test and refiled under Chapter 13.

Additional Information on the Automatic Stay

It is important to know that the automatic stay is not absolute. Under certain circumstances, creditors may file a motion to lift the automatic stay. If the Oklahoma bankruptcy court grants the motion, the creditor can proceed against you with collection efforts. If a creditor files a motion to lift the automatic stay, you are entitled to notice of the motion and you have the right to have a hearing on the matter. Motions to lift the automatic stay are most commonly filed in cases where there is a vehicle that has been repossessed and the creditor is attempting to sell the vehicle. Courts must be presented with compelling evidence in order to lift the automatic stay, and other than in vehicle repossession situations, will typically only do so in the following circumstances:

  • Debtors are unable to make payments on secured debt like a home or a vehicle unless the debtor can demonstrate how they will pay the debt.
  • A secured debt, like a home or a vehicle, is not adequately protected, meaning there is no insurance on the collateral, or there is a substantially high chance the debtor will not make future payments because there is not sufficient equity in the asset.
  • Unsecured debt such as alimony and child support payments.

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*We are a debt relief law firm in Tulsa, Oklahoma.

*We help people file for bankruptcy relief under the Bankruptcy Code.