What is an automatic stay?
An automatic stay is a court-issued injunction that immediately stops a foreclosure sale, wage garnishment, and most other collection activities the moment a bankruptcy petition is filed.
The automatic stay is a federal injunction that takes effect the instant a debtor files for bankruptcy under Chapter 7 or Chapter 13. It halts foreclosure sales, eviction proceedings, utility shutoffs, and creditor lawsuits. For homeowners facing foreclosure in the Indianapolis area, filing bankruptcy triggers this stay without requiring a judge to hold a hearing first. The lender must immediately suspend the foreclosure process.
The stay exists to give the debtor breathing room and protect assets while the bankruptcy case proceeds. In Chapter 13 cases, debtors can propose a repayment plan to catch up on missed mortgage payments over three to five years, which can allow them to keep their homes. In Chapter 7, the stay provides temporary protection while nonexempt assets are liquidated to pay creditors, though the lender may eventually resume foreclosure after the case concludes.
Lenders can seek relief from the stay if the debtor has no equity in the property, is not making current payments, or if the foreclosure will not harm the debtor's rights. A lender files a motion for relief from stay in the bankruptcy court, and the judge decides whether to allow foreclosure to proceed. However, while the stay is in place, the foreclosure sale cannot move forward, giving bankruptcy attorneys and their clients time to explore loan modification, refinancing, or repayment options.