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The reach and limits of the automatic stay in bankruptcy

Many people in Eastern Tennessee who are contemplating bankruptcy are aware of a legal device called the "automatic stay." The automatic stay is an order that is issued by the bankruptcy court where the petition has been filed. The stay is addressed to every creditor identified by the debtor in his initial filings, and it prohibits any attempt to collect on obligations owed by the debtor. The automatic stay can protect a debtor against attempts to foreclose a mortgage, cut off utilities, liquidate liens and pursue collection actions on credit card debt.

In this way, the automatic stay can provide significant relief from attempts to collect amounts due from the debtor. The automatic stay, however, does not provide complete protection. Some debts are not affected by the stay. Actions to collect child support or establish paternity will not be stayed. Certain tax proceedings, such as establishing a tax deficiency or demanding payment for past due taxes, are not affected by the stay. Criminal actions that involve both an obligation to pay a debt and criminal penalties will be halted as to the debt claim but not as to the allegations of criminal conduct.

The automatic stay should not be viewed as a "save all." Creditors can avoid the automatic stay by asking the court for relief on grounds that the loan was procured by fraud or that the stay is not serving its intended legislative purpose. The automatic stay may likewise stop a mortgage foreclosure proceeding during the bankruptcy proceeding, but it may not prevent a lender from reclaiming the collateral at the conclusion of the bankruptcy proceeding.

The effect of the automatic stay in individual circumstances may involve complicated legal questions. Anyone with questions about the operation of the automatic stay may wish to consult an experienced bankruptcy attorney for advice on how the stay will affect a person's individual financial situation.

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