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 Vermont, 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, foreclosures, garnishments, and repossessions. This stay applies 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 immediate collection efforts. It also ensures that all creditors are treated fairly by preventing one creditor from pursuing aggressive action to the detriment of others. Creditors can, in some cases, ask the bankruptcy court to lift the stay if they believe it's unjustly preventing them from enforcing their rights.