The purpose of bankruptcy is to give a debtor a “fresh start” by providing temporary protection from creditors. Part of that protection is the automatic stay, which is a legal order that stops collections activity from the moment a bankruptcy case is filed. Whether you file a Chapter 7 or a Chapter 13, the automatic stay allows you some much-needed breathing room while you reorganize your finances. The stay lasts throughout your bankruptcy case unless a creditor can convince the judge that it should be set aside in whole or in part.

The automatic stay generally puts a stop to these debt-collection measures:

• Paycheck garnishments — The stay prevents creditors from having your employer deduct a portion of your pay to satisfy debts. However, this only applies to garnishments for debts that can be discharged through bankruptcy, such as medical bills, personal loans and credit cards. Non-dischargeable debts like child support and alimony arrears can still be the basis of paycheck garnishments.
• Bank account levies — Creditors who win a judgment against you can place a levy on your bank account to enforce it. However, when you file for bankruptcy, all levies immediately cease as part of the automatic stay. A creditor who levied a bank account before you filed for bankruptcy may be required to return any money obtained 90 days prior to the filing.
• Sheriff sales — If your home or other real property has been foreclosed on and is scheduled to be sold at a public auction by a sheriff to satisfy a debt, the automatic stay will halt the foreclosure proceeding and the sale. It’s important to file for bankruptcy as soon as possible because if the property is sold at a sheriff’s sale prior to the filing, you will not be able to recover it.

Other types of proceedings blocked by the automatic stay include repossessions, utility shutoff and collection lawsuits. Debts not covered by the automatic stay include child support and alimony arrears. In addition, the automatic stay does not stop enforcement of criminal fines or sanctions.

Creditors may attempt to lift the automatic stay by filing a motion with the court. However, they must prove that good cause exists. For example, a secured creditor, such as the holder of your home mortgage or auto loan, can argue that the collateral has insufficient equity to cover the amount due and therefore that the lender should be allowed to go forward with collection.

If you are facing a paycheck garnishment, a bank account levy or a sheriff’s sale of any of your property, the Law Offices of James C. Zimmermann is ready to assist you. We’ve helped New Jersey clients for over 30 years from our locations in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley. Call 973-764-1633 or contact us online for a free consultation.