HOW THE AUTOMATIC STAY HELPS YOU IN BANKRUPTCY

The automatic stay in bankruptcy is the provision in the Bankruptcy Code that creates an immediate “stop” to collection efforts by creditors against you when you file for bankruptcy. When your bankruptcy filing is confirmed, the court will inform your creditors accordingly and enforce the automatic stay. A creditor may try to collect payment after the automatic stay goes into effect, but to do so they would need the judge to grant permission, or “relief from the automatic stay,” in order to proceed with any collection activities. In general, the automatic stay will be in force until the court reverses it or you exit bankruptcy.

The automatic stay gives you more time to handle finances. The provision is especially useful for those who are at risk of eviction, foreclosure, utility disconnection or wage garnishment.  It can prevent you from being evicted if you rent, from being foreclosed on if you own, from your utilities being cut off or your wages being garnished.

Certain payment obligations on your part are exempted from automatic stay, such as alimony payments and child support. When it comes to tax debt many people mistakenly classify it together with alimony and child support thinking that collection efforts by the IRS cannot be stopped by automatic stay. But this is only somewhat true. The fact is the automatic stay can prevent liens or property seizures by the IRS. And while alimony and child support payments are usually not dischargeable under Chapter 7 bankruptcy, certain tax debt may be dischargeable depending on your circumstances. Your tax debt may be eligible for discharge if it has been assessed by the IRS at least 240 days before filing, you have income tax returns filed for the last 2 years and the debt was due at least 3 years prior to filing.

But if the bankruptcy court decides your tax debt is not dischargeable under Chapter 7 bankruptcy, you can choose to file Chapter 13 bankruptcy instead where you pay off your tax debts (along with other debts) under a repayment plan. And it is likely that as long as you are setting up a payment plan under Chapter 13, the IRS will not make collection efforts against you while the automatic stay is in effect.