What Is the Backbone of Bankruptcy? The Answer Is the Automatic Stay 11 USC Section 362


The backbone and largest grant of authority to the Bankruptcy Court is the automatic stay or stay. As soon as a voluntary petition for bankruptcy protection is filed with the Bankruptcy Court the stay is in effect. The stay stops any and all collection actions against the person or business that files bankruptcy. The automatic stay is the single most important concept when filing for bankruptcy.

The stay is a temporary injunction that stops lawsuits, foreclosure, repossessions, set off of debt, any act to perfect a security interest, obtain possession of property, the commencement or continuation of a proceeding before the United States Tax Court and all types of actions taken to enforce a debt against a person or business that files for bankruptcy protection. The stay becomes permanent by order of the Bankruptcy Court when the bankruptcy case completed successfully.

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The automatic stay gives a person or business seeking protection from the Bankruptcy Court breathing room from their creditors to reorganize, actually start picking up the phone again, and in most Chapter 7 no assets cases just make all the annoying harassment and debt go away forever upon discharge.

So why is the stay so powerful? As soon as the stay is in place all creditors must seek the Bankruptcy Court's approval to continue to pursue assets owned or held by the person or business filing for bankruptcy protection. This means if a creditor has a meritless claim or is doing something that is not allowed by applicable state or federal law, in theory the Bankruptcy Court will not allow the creditor to proceed. A creditor will have to seek relief from the automatic stay or approval from the Bankruptcy Court to continue their state court lawsuit, foreclosure or repossession of your real or personal property. Your San Jose bankruptcy lawyer at West Coast Bankruptcy Attorneys will represent your interests and make sure that a creditor is not violating the automatic stay and protect your property from unscrupulous creditors.

Also, if the automatic stay is violated by a creditor your San Francisco bankruptcy lawyer at West Coast Bankruptcy Attorneys can seek sanctions against the creditor. The automatic stay is violated when a creditor continues to seek collection of a debt by levying on a bank account, foreclosure of real property, or repossession of personal property. A creditor may even sue a person or business after the automatic stay is in effect. All of these actions are potentially sanctionable by the Bankruptcy Court. Unfortunately, a motion for the violation of the automatic stay must be filed with the Bankruptcy Court and sanctions requested.


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