Does The Automatic Stay Apply To All Creditors And All Types Of Debt?

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The automatic stay, as described in Section 362(a) of the Bankruptcy Code, is very broad, but 362(b) has a fairly lengthy list of exceptions to the automatic stay, some of which involve alimony and child support obligations. (There is even one dealing with certain tax liability.) Given the length of the list of exceptions, it’s best to give me a call to discuss your particular situation, rather than explore every single exception to the automatic stay here.

Generally speaking, if you’re facing a credit card garnishment, a medical debt garnishment, or that sort of thing, the automatic stay will stop it. For the lion’s share of debts that lead to wage garnishment, the garnishment will stop after the filing of the papers because the automatic stay will be triggered. But, again, there are limitations on the automatic stay.

How Quickly Can A Wage Garnishment Be Stopped?

In theory, everything has to stop the minute you file the bankruptcy papers because the automatic stay is immediately triggered. The Ninth Circuit Court of Appeals held unambiguously that any legal action that a creditor takes after the filing of the bankruptcy papers is null and void. Nevertheless, there are, of course, practical issues. When you file that bankruptcy petition, will the creditor immediately know? Will the sheriff immediately know? Will your payroll department immediately know? Well, obviously not. It’s not like they have some superpower and can pick up thoughts from the Bankruptcy Court.

How do they find out? In most cases, they will find out because the bankruptcy court sends notices out to each of the creditors telling them of the filing. What I do in each of my cases that involve wage garnishment is get the fax number, email address, and mailing address for each of the relevant parties: the payroll department, the creditor, the creditor’s attorney, etc. Some of the sheriff’s offices have fax numbers and email addresses, but most of them in California won’t accept that kind of communication; so I have to send it via snail mail. As soon as I file the papers, I fax over, email, and send via snail mail a copy of the voluntary petition (just the first seven pages), the notice of electronic filing, and a copy of the wage garnishment order — enough information so that the wage garnishment can be stopped.

In a few cases, there can be an issue of contumacy, or refusal to comply with the court order. For example, the sheriff might say, “We don’t care.” There have been a couple of times where I’ve had to sue local sheriffs to get them to stop the wage garnishment and give back the money.

Generally speaking, you can’t stop the wage garnishment instantaneously, even though the wage garnishment is considered legally null and void as of the filing of your petition. How quickly the garnishment will stop depends somewhat on the mechanical process of contacting the relevant parties.

How Long Does An Automatic Stay Stop Wage Garnishments?

The automatic stay is triggered upon the filing of the bankruptcy papers. If you’ve had previous bankruptcy cases during the 12 months prior to the filing of the current case, there are limitations on the automatic stay. If you have had one previous case, you must get the judge to sign an order reinstating the stay, or on day 31, it doesn’t exist. If you’ve had more than one case, there will be no automatic stay. Assuming that you haven’t had a previous case pending during the 12 months prior to the current case, the automatic stay takes effect and remains in place until either the creditor in question successfully moves the court to lift the stay, or you get a discharge, and the stay is replaced by the permanent discharge injunction.

With regard to moving the court to lift the stay, just because the creditor files a motion for relief from the automatic stay does not mean that the judge will grant that motion. They’ve got to have a good reason, and if the reason is that they just want to keep on going with the wage garnishment, the chances are they’re not going to succeed with that sort of motion.

There are motions for relief from stay that are very successful. For example, let’s say you haven’t been making your car payments. When you file the bankruptcy petition, the creditor would like to come and pick the car up. You’ve made no provision in your bankruptcy papers to keep and cure the arrearage and make payments. In fact, let’s say you’ve offered to surrender the vehicle as part of the bankruptcy process. However, the creditor can’t come and pick the car up while the stay is in place. In that situation, the creditor will file a motion for relief from the automatic stay, and ask the judge to lift the stay just for the limited purpose of retrieving the car. That type of motion is granted just as a matter of course.

Another successful motion involves state court action. Let’s say your creditor has been suing you in California Superior Court. You file a bankruptcy petition that automatically stays that California Superior Court action, but the creditor would like to resurrect the action and proceed at least to judgment. The creditor can file a motion for relief from the automatic stay to have that stay lifted for the limited purpose of completing the state court action.

There are other types of typically successful motions for relief from the automatic stay, but if there is no motion for relief from the automatic stay, then the stay remains in place until you get your discharge. The discharge injunction then replaces the automatic stay and forever prohibits a creditor from collecting a discharged debt.

If there are debts that were not discharged, the creditor is free to resume the collection actions against you on those non-discharged debts. For example, let’s say you owe student loans, which are typically not discharged in a bankruptcy case unless you are successful in an adversary proceeding to get them discharged. While the automatic stay will stop the lender from collecting that student debt, once you get your discharge, the automatic stay terminates, and is replaced with the permanent discharge injunction. Then, the creditor can resume collection actions.

For more information on Wage Garnishments in California, a free 20 Minute Phone Strategy Session is your best next step. Get the information and legal answers you are seeking by calling (562) 777-9159 today.