The Automatic Stay in South Carolina: Implications for Creditors
If you’re a South Carolina business owner who is owed money by a customer, the phrase “automatic stay” might evoke concern, especially when you’re anxious about recouping outstanding debts. When a debtor files for bankruptcy in South Carolina, the automatic stay comes into effect, freezing nearly all collection activities. Understanding what this means for your business and what actions are still available to you is essential.
What Is an Automatic Stay?
An automatic stay is a key feature of the bankruptcy process that takes effect immediately when a debtor files for bankruptcy. It is a legal injunction that halts creditors, collection agencies, and government entities from pursuing collection actions against the debtor. This means creditors cannot take actions like initiating lawsuits to collect on a debt during the stay.
The main purpose of the stay is to give the debtor a temporary respite from collection phones calls and mail that they’ve been dealing with, allowing them time to reorganize their affairs. It also ensures equitable treatment of creditors by preventing one creditor from seizing property or assets on which other creditors may have a claim.
When Does the Automatic Stay End?
The automatic stay has limitations on its duration and can end under various circumstances, such as:
- Completion of Bankruptcy Case: One reason the automatic stay would end is the completion of the bankruptcy case. The need for an automatic stay ceases once debts get discharged, or a repayment plan is completed.
- Case Dismissal: If a bankruptcy case gets dismissed for any reason, the automatic stay also ends, usually immediately upon dismissal.
- Motion for Relief: Creditors can petition to lift an automatic stay for specific debts or assets by arguing that a Debtor’s actions or defaults are causing them irreparable harm or that the debtor isn’t acting in good faith. If granted, this ends the automatic stay for that creditor and their collateral, if any.
- Multiple Filings: If a debtor has had multiple bankruptcy filings within a year, the automatic stay could be limited in duration, often to 30 days, or might not go into effect at all.
What Creditors Can and Can’t Do When an Automatic Stay Is in Place
When an automatic stay has begun, all collection activity against the Debtor and any non-filing co-debtors must cease. The following list gives examples of actions that must be stopped but is not a complete list.
What Creditors Can’t Do
- Communicate with Debtors: Creditors cannot call, email, or send mail to debtors during the stay. All communication must go through the bankruptcy court and the debtor’s attorney.
- Start or Continue Legal Actions: Filing new lawsuits, continuing pending lawsuits, or taking any legal action to collect a debt against the debtor is generally prohibited.
- Repossession or Foreclosure of Property: Creditors are generally not allowed to repossess property like cars or initiate/continue foreclosure proceedings on homes during the automatic stay.
- Disconnect Utilities: Utility companies usually can’t disconnect services for non-payment while an automatic stay is in effect.
What Creditors Can Do
- File Motions for Relief: If a creditor believes the automatic stay is causing undue hardship or their collateral is at risk, they can file a motion to lift the stay for that specific debt or asset.
- Assess Secured Assets: While direct repossession actions are halted, creditors can evaluate the status of secured assets and prepare to file a motion for relief if the debtor fails to protect them.
- Participate in Bankruptcy Proceedings: Creditors have a right to be notified of and participate in bankruptcy court proceedings that could affect their claims.
- Receive Plan Payments: In a Chapter 11 bankruptcy, creditors may vote on proposed payment plans and receive payments set forth by the plan, even if an automatic stay is in effect.
Contact a Bankruptcy Law Attorney in South Carolina
If you’re facing challenges during a debtor’s bankruptcy, you need seasoned professionals on your side. With more than 80 years of combined experience in creditors’ rights, litigation and bankruptcy practice, Crawford & von Keller, LLC has the skills you need to safeguard your financial interests.
Contact us now at 803-790-2626 to explore your legal options and find a path forward.