Losing the Automatic Stay: Missing Deadlines for Handling Secured Debts

If you fail to follow certain bankruptcy law deadlines, you will lose the protection of the automatic stay for property that secures a debt.

The automatic stay puts a stop to the efforts of most creditors to collect your debts. However, there are some exceptions and limits to this powerful tool. In Chapter 7 bankruptcy, one of these exceptions kicks in if you don't meet deadlines set forth in bankruptcy law for telling creditors what you want to do with property that secures a debt. (To find out which debts are secured, see What is a Secured Debt?.)

Deadlines to Inform Secured Creditors About Your Intentions

If you have property that secures a debt—that is, property that the creditor has a right to take if you don’t pay the debt—you will have to file a Statement of Intention with the court and serve it on your creditors. The Statement of Intention explains what you want to do with the collateral. You have several choices:  

  • give the property back to the creditor and get rid of the debt (called “surrendering” the property)
  • keep the property and pay the creditor what it would cost to replace it, given its age and condition, which is often less than what you still owe on the debt (called “redeeming” the property), or
  • keep the property and reaffirm the contract, which means that you will continue to owe some or all of the debt after your bankruptcy (called “reaffirming” the debt).  

To learn more about these options, see the articles in our Secured Debt & Property in Chapter 7 area.  

The bankruptcy rules require you to mail this Statement of Intention to the secured creditor within 30 days after filing your bankruptcy case and to actually carry out your stated intention—by giving back the property, paying its replacement value to the creditor, or signing a reaffirmation agreement—within 30–45 days after your first creditors’ meeting (because the law is contradictory on this time limit, you should take action within 30 days, to be on the safe side).  

Failure to Meet Deadlines: The Stay Does Not Protect the Property

If you don’t meet these deadlines, the stay will no longer apply to that property (although it will continue to protect you otherwise). For example, assume you want to continue paying on your car note, but you don’t serve your Statement of Intention on time. The stay will no longer protect your car or prevent the creditor from repossessing it, but your other property will still be protected.

To learn more about the automatic stay and the other exceptions to the stay in bankruptcy, see our Bankruptcy's Automatic Stay area.

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