The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. A stay of creditor actions against the debtor automatically goes into effect when the bankruptcy petition is filed. The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor's financial situation.

In North Carolina, as in all states across the United States, the automatic stay is a fundamental provision of the federal Bankruptcy Code (11 U.S.C. § 362). When an individual or business files for bankruptcy, the automatic stay immediately takes effect, halting most creditors from continuing with collection actions, including lawsuits, wage garnishments, or even contacting the debtor to demand payment. This stay applies to actions related to debts that were incurred before the filing of the bankruptcy petition. The purpose of the automatic stay is to provide a 'breathing spell' for the debtor, allowing them time to reorganize their finances without the pressure of creditor actions. It also ensures that assets are preserved for orderly distribution in the bankruptcy process and that creditors are treated fairly. Creditors can petition the court for relief from the stay if they believe their interests are unjustly harmed. The specifics of how the automatic stay applies can vary depending on the type of bankruptcy filed (e.g., Chapter 7, Chapter 11, Chapter 13), and certain types of actions are not stayed, such as criminal proceedings and some family law issues.