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What is an automatic stay?

On Behalf of | Aug 22, 2023 | Bankruptcy |

When New Mexico consumers file Chapter 7 or Chapter 13 bankruptcy petitions, a court order called an automatic stay is issued. Automatic stays go into effect immediately, and they protect individuals in financial difficulties from evictions, foreclosures, repossessions, wage garnishments and debt-related lawsuits. They also put an end to daily harassment from creditors and debt collectors. Automatic stays remain in effect until bankruptcy cases are resolved.

Debts not covered by an automatic stay

Automatic stays provide people burdened by overwhelming debt with a great deal of protection, but they do not put a stop to all debt-related actions. Automatic stays do not override existing court orders, which means landlords who secure eviction judgements before bankruptcies are filed do not have to obey them. Individuals who file bankruptcies are still required to make child support payments, and they must also pay any court-ordered fines. People who file Chapter 7 bankruptcies after borrowing from their 401(k) retirement accounts will be subject to taxes after an automatic stay is issued because the loan will be discharged and not repaid.

The consequences of violating an automatic stay

Creditors can ask bankruptcy judges to allow them to continue collection efforts after a automatic stays are issued, but these requests are rarely granted. Creditors that knowingly violate an automatic stay can face severe consequences. In addition to being ordered to cover a borrower’s attorney fees and court costs, creditors that violate automatic stays can be ordered to pay punitive damages. Bankruptcy judges can also impose sanctions on debt collection companies that continue to harass borrowers after an automatic stay has been issued.

A respite from crushing debt

Bankruptcy offers the chance of a fresh financial start, and automatic stays provide a respite from the anxiety and stress that people with unmanageable financial situations deal with on a daily basis. Automatic stays stop creditor harassment, end wage garnishments and prevent people from losing their homes or cars, and creditors that ignore them are treated harshly by the courts.