The automatic stay in Chapter 7 bankruptcy

When a consumer is overwhelmed with debt in Connecticut, Chapter 7 bankruptcy could give them relief. It discharges some unsecured debts through selling of nonexempt property to pay creditors. Chapter 7 is often completed faster than other types of bankruptcy, and it has the benefit of the automatic stay.

How the automatic stay works

The automatic stay is a provision that prevents creditors from temporarily pursuing collection actions. The provision stays in place until the consumer gets discharged, which is commonly four to six months in Chapter 7 proceedings. This gives the trustee time to value assets, ensures that creditors get fair treatment and protects the consumer’s property from seizure.

It halts wage garnishments, foreclosure, repossessions, tax collections and utility shutoffs for 20 days. It can stall evictions unless the landlord has already filed a judgment against the tenant. The automatic stay cannot stop action against debts accrued from some tax proceedings, criminal actions, pension loans or domestic support.

The automatic stay only gives a consumer protection for 30 days if they have a pending case within the last year. If the consumer has two pending cases within one year, the stay doesn’t offer any protection unless they get approval.

Motion to lift the automatic stay

If a creditor disagrees with the automatic stay, they may file a motion to lift it. The consumer has 14 days to respond to the motion, or the lift is granted by default. A creditor may file this motion for many reasons, including:

  • Tenant and landlord disputes
  • Possible property depreciation during proceedings
  • Lawsuits against the consumer in another court
  • Payments in arrears with no equity in the property

The creditor must have a good reason to file a motion to lift and prove it to the court. The trustee could argue that the property has enough equity to pay creditors at the end of the case.

If creditors violate the automatic stay, they must commonly repay garnished wages. In some cases, they will face litigation filed against them.