Automatic Stay

Category: legal

A federal injunction that instantly halts all collection activities, foreclosures, and lawsuits against a debtor upon filing for bankruptcy.

The automatic stay is the "absolute shield." The millisecond a bankruptcy petition is stamped by the court, it becomes a federal crime for a creditor to call, sue, or seize assets from the debtor. It provides the breathing room necessary to organize a restructuring plan.

Common Examples

• The automatic stay forced the bank to cancel the scheduled sheriff’s sale of the commercial property.
• Violating the automatic stay by continuing to send collection letters exposes the creditor to severe punitive damages in federal bankruptcy court.