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Understanding bankruptcy’s automatic stay

When individuals or businesses file bankruptcy, something invisible yet incredibly resilient occurs. It serves to deflect the attempts by creditors and bill collectors to collect money owed by a debtor for services rendered or goods received.

An important aspect of bankruptcy law is known as the ‘automatic stay.’ The ‘stay’ basically acts like Teflon against attempts to collect debts allegedly owed by a debtor. In the standard bankruptcy, the automatic stay remains in effect during the entire pendency of a bankruptcy. However, exceptions to that norm were enacted when Congress overhauled the U.S. Bankruptcy Code in 2005.

A major component of the Bankruptcy Abuse and Creditor Prevention Act of 2005, which served to overhaul the U.S. Bankruptcy Code, referred to automatic stays. As Congress contemplated how to tweak the laws about automatic stays, the general consensus was to write a law that would deter debtors from filing and dismissing a bankruptcy just to benefit from the protections afforded by the automatic stay.
So now, when a debtor files for bankruptcy, if it’s the first time that case was filed, the bankruptcy receives a complete automatic stay.

However, say a debtor (business or individual) filed for bankruptcy within the last year and the case was dismissed prior to discharge, whether that occurred because the debtor requested it or the court ordered it. If that case is refilled within a year, it will enjoy an automatic stay of 30 days.

If a debtor files and dismisses the same case several times, the case will not benefit from an automatic stay at all. Congress wanted to ensure that debtors are not abusing the privilege of the automatic stay, so it decided there are situations when a bankruptcy filing does not benefit from an automatic stay, at all.

Contact a Texas Bankruptcy Attorney – If you would like to obtain additional information about Texas bankruptcy, explore your options, learn about the bankruptcy process or discuss your particular situation with an experienced Texas Bankruptcy Attorney, please schedule a free initial consultation by calling us toll free at 877.345.6767 (Dallas – Fort Worth area), 866.715.1529 (Houston area) or 866.678.1900 (South Texas). If you prefer, you can also fill out our intake form and we contact you to schedule a consultation.

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