Most people who call about bankruptcy are not calling about bankruptcy. They are calling because a paycheck came in short, or because a notice of sale arrived with a date on it. The debt has been a problem for months; what is new is that someone has begun taking things.
The answer to both questions is the same provision, and it is the single most powerful thing in the Bankruptcy Code: the automatic stay, 11 U.S.C. § 362.
What the automatic stay actually is
Section 362 (a) provides that the filing of a petition “operates as a stay, applicable to all entities.” Read that clause closely, because two things in it do the work.
Operates. No judge signs anything. No motion is filed. No hearing is held. The stay exists from the moment the petition is filed, which in practice means the moment the clerk’s electronic docket stamps it. A creditor who was within its rights at 9:59 that morning is violating a federal injunction at 10:01.
All entities. Not merely the creditor being sued, and not merely creditors who have been notified. The stay binds the bank, the collection agency, the law firm, the payroll department that has been withholding, and the sheriff. Actual knowledge affects what happens next — whether a violation was willful — but it does not affect whether the stay applies.
What it reaches is broad. Under § 362 (a) (1), the commencement or continuation of any judicial or administrative proceeding against the debtor that could have been brought before the filing. Under (a) (2), the enforcement of any judgment obtained before the filing. Under (a) (6), any act at all to collect a claim that arose before the filing. Those three paragraphs cover nearly every collection tool a Wisconsin creditor has.
What it does to a Wisconsin wage garnishment
Wisconsin earnings garnishment lives in subchapter II of ch. 812. A creditor with a money judgment files a garnishment notice, serves the employer and the debtor, and the employer begins withholding. Under Wis. Stat. § 812.34 (2) (a), eighty percent of the debtor’s disposable earnings are exempt — which means the creditor reaches twenty percent. “Disposable earnings” is defined narrowly at § 812.30 (6): gross pay less social security and federal and state income taxes shown on the wage statement. Not less rent, not less the car payment, not less insurance.
A bankruptcy filing stops the withholding. Continuing to garnish a prepetition judgment after the petition is filed is the enforcement of a prepetition judgment under § 362 (a) (2) and an act to collect under (a) (6). The practical mechanics matter: the employer’s payroll department has to be told, and the creditor has to release the garnishment. That is ordinarily the first call your lawyer makes after filing, and it is why the filing date and the payroll cutoff date are worth coordinating rather than leaving to chance.
One thing worth saying plainly, because it is the sort of advice that costs a lawyer a fee and saves a client one: not everyone facing a garnishment needs to file bankruptcy. Wisconsin’s own exemption is more generous than most people realize. Under § 812.34 (2) (b), a debtor’s earnings are totally exempt from garnishment if household income is below the poverty line, or if the debtor receives need-based public assistance, received it within the six months before the garnishment forms were served on the employer, or has been determined eligible for it. Under (2) (c), if garnishing twenty percent would drive household income below the poverty line, the garnishment is limited to the amount above that line. The debtor claims this on the answer form that must be served along with the garnishment, and under § 812.37 (3) the employer is required to treat the claimed exemption as true unless a court orders otherwise.
Those exemptions have limits. Section 812.34 (1) removes them where the judgment debt is for the support of any person, for unpaid taxes, or was ordered under Wisconsin’s own amortization statute or chapter 13 of the Bankruptcy Code. And under § 812.39 (2), a support assignment under ch. 767 takes priority over an ordinary garnishment regardless of who got there first.
What it does to a Wisconsin foreclosure
Wisconsin is a judicial foreclosure state, which means the lender must sue, obtain a judgment of foreclosure and sale, wait out a redemption period, sell at auction, and then return to court to have the sale confirmed. Each of those stages takes time, and the stay can interrupt the process at any of them.
The redemption periods are set by statute and depend on the property and the mortgage. For an owner-occupied one- to four-family residence, a farm, a church, or a tax-exempt nonprofit, § 846.10 (2) (a) bars a sale until twelve months after judgment if the mortgage was executed before April 27, 2016, or six months if it was executed on or after that date — with an eight-month option under subd. 2. b. if the mortgagor moves before judgment and shows a good-faith listing with a licensed broker. Where the lender waives its deficiency judgment on a parcel of twenty acres or less under § 846.101, those periods shorten to six months and three months respectively, or five months on the same good-faith-listing showing.
During that window the homeowner has a statutory right of redemption. Section 846.13 permits the mortgagor to redeem “at any time before the sale” by paying the judgment, interest, costs, and any post-judgment taxes the plaintiff has paid. And “before the sale” is more forgiving than it sounds: in State Bank v. Sechen, 2005 WI App 253, the court of appeals held that sale in this section means confirmation of the sale, and confirmation is a separate court proceeding requiring five days’ notice under § 846.165. The auction is not the end of the road in Wisconsin. It only looks like it.
Bankruptcy interacts with that timeline in two different ways depending on the chapter. A chapter 7 filing stops the foreclosure action but does not, by itself, cure the arrears; it buys time and discharges personal liability, while the lien survives. A chapter 13 filing can do considerably more, because § 1322 (b) (5) permits a plan to cure a default over a reasonable time while maintaining the ongoing payments, and § 1322 (c) (1) preserves that cure right “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.”
Whether a Wisconsin property is “sold” for that federal purpose at the auction or at confirmation is precisely the kind of question that turns on the particular case, and it is not one to resolve by reading an article. What every homeowner should take from it is narrower and more useful: the day of the sheriff’s sale is not automatically the last day anything can be done, and a lawyer should be consulted about the timing before that date rather than after it. The difference between filing on the right side of that line and the wrong side is the house. Our discussion of Chapter 7 versus Chapter 13 in Wisconsin explains the broader choice between the two.
What the stay does not stop
This is the part of the conversation clients least expect, and it is why the phrase “bankruptcy stops everything” does real harm.
Section 362 (b) carves out a list. Criminal proceedings are not stayed — (b) (1). And a substantial family-law exception sits at (b) (2): the filing does not stay an action to establish paternity, to establish or modify a domestic support obligation, concerning child custody or visitation, regarding domestic violence, or for the dissolution of a marriage — though the divorce exception stops where the proceeding seeks to divide property that is property of the bankruptcy estate, which is a line worth taking seriously when a divorce and a bankruptcy are running at the same time.
Support collection continues too. Under (b) (2) (B) a domestic support obligation may still be collected from property that is not property of the estate, and under (b) (2) (C) income withholding for a support obligation continues. So does the withholding or suspension of a driver’s, professional, or recreational license for unpaid support under (b) (2) (D), and the interception of a tax refund under (b) (2) (F). A filer who expected the child support withholding to pause has misunderstood what was purchased.
How long it lasts, and how it ends early
Section 362 (c) sets the outer limits. The stay of acts against property of the estate lasts as long as the property remains property of the estate. The stay of everything else lasts until the earliest of the case being closed, the case being dismissed, or a discharge being granted or denied.
Repeat filers should read the next two paragraphs twice. Under § 362 (c) (3), if the debtor is an individual who had another case pending within the preceding year that was dismissed, the stay terminates on the thirtieth day after the later filing as to debts, the property securing them, and leases — unless a party moves to continue it, demonstrates the later filing is in good faith, and gets a hearing completed before the thirty days run out. Under § 362 (c) (4), if two or more of the debtor’s cases were pending and dismissed in the previous year, the stay does not go into effect at all on the new filing. Those provisions turn a second or third filing into a matter of strict scheduling, and they are unforgiving of the debtor who files a bare petition the night before a sale and assumes the machinery will take care of the rest.
Creditors can also move for relief. Under § 362 (d) (1) the court grants relief “for cause, including the lack of adequate protection” of the creditor’s interest — a mortgage holder receiving nothing on a house that is depreciating is the standard example. Under (d) (2) relief follows where the debtor has no equity in the property and it is not necessary to an effective reorganization. And § 362 (e) gives that motion a clock. The general rule at (e) (1) is that thirty days after the request the stay terminates as to the moving creditor unless the court orders it continued after notice and a hearing. For an individual debtor in chapter 7, 11, or 13 — which describes nearly everyone reading this — (e) (2) fixes the outer limit at sixty days: the stay terminates on the sixtieth day after the request unless the court renders a final decision within that period, or the period is extended by agreement of all parties in interest or by the court for good cause it finds and states. Either way the clock runs against the debtor, and a creditor’s motion is not something to answer at leisure.
When a creditor ignores it
Section 362 (k) (1) provides that an individual injured by a willful violation of the stay “shall recover actual damages, including costs and attorneys’ fees,” and in appropriate circumstances may recover punitive damages. The word is shall. A creditor who keeps calling, keeps garnishing, or proceeds to a sale after being told the case was filed is exposed, and the exposure is not theoretical. Keep the voicemails, keep the pay stubs, and tell your lawyer immediately.
When the case ends in a discharge, the stay is replaced rather than merely lifted: § 524 (a) (2) makes the discharge a permanent injunction against any act to collect the discharged debt as a personal liability. And in chapter 13 specifically, § 1301 (a) adds a codebtor stay that protects an individual who cosigned or secured a consumer debt — which is frequently the relative who cosigned a car loan and never expected to be pursued for it.
The Wisconsin alternative worth knowing about
Wisconsin has a state-court procedure most other states do not: the wage-earner amortization under Wis. Stat. § 128.21. A person whose principal income is wages or salary may petition the circuit court in the county of residence, stating an inability to meet current debts and an ability to amortize them over not more than three years. The statute directs that on the filing the court “shall forthwith, by order” stay enforcement of any executions, attachments, or garnishments identified in the petition, and § 128.21 (2) provides that after filing and until dismissal no execution, attachment, or garnishment may be levied or enforced on a covered prepetition claim.
It is not bankruptcy. There is no discharge; the plan pays the listed claims in full, and by its terms the section’s stay speaks to executions, attachments, and garnishments rather than to every collection act a creditor might attempt. But for the right client — steady wages, a garnishment already biting, debts that can realistically be paid over three years, and a wish to avoid a federal filing — it is a genuine option, and it belongs in the conversation.
Talk to a New Berlin bankruptcy attorney
The automatic stay is powerful, immediate, and considerably narrower than its reputation. The questions that actually decide a case are the ones underneath it: which chapter, filed on which day, with which arrears cured over what period, and whether a prior dismissed case has quietly put a thirty-day clock on the whole thing.
Carson Law Office handles bankruptcy matters for clients throughout New Berlin, Waukesha County, Milwaukee, West Allis, Wauwatosa, and the surrounding communities. If your wages are being garnished, or a foreclosure sale has been scheduled, call (262) 860-8932 or contact us here — and call before the sale date, not after it.
This article provides general information about Wisconsin and federal bankruptcy law and is not legal advice. Reading it does not create an attorney-client relationship. Statutes, exemption figures, and case law change, and the effect of a bankruptcy filing depends on the facts of the particular case; for advice about your own situation, speak with a licensed Wisconsin attorney.