Automatic Stay

DEFINITION of 'Automatic Stay'

A legal provision that temporarily prevents creditors from pursuing debtors for amounts owed. An automatic stay goes into effect immediately when a debtor files for bankruptcy. Creditors who believe they have sufficient grounds can petition the court to lift the automatic stay so they can continue the collection process. A bankruptcy filing in bad faith will not create an automatic stay. Also, certain debts, such as child support, are not stayed.

BREAKING DOWN 'Automatic Stay'

Once an automatic stay is in effect, creditors are unlikely to receive the full amounts they are owed. Instead, they will receive a proportional share of the bankrupt debtor's limited assets. A debtor may sue a creditor who continues to contact them or who attempts to sue them after an automatic stay is in place.