Bankruptcy Automatic Stay

bankruptcy automatic stay

Bankruptcy Automatic Stay

Bankruptcy provides a number of benefits to people who are dealing with crushing debt. Depending on the type of bankruptcy you choose, it can provide you with time and the means by which to handle your bills. It can result in the discharge of debt, which means you won’t need to pay back what you owe. It also creates something known as the bankruptcy automatic stay.

An automatic stay means the court officially stops creditors from pursuing you to collect on debts. All collection efforts must stop as soon as you officially file for bankruptcy. This includes lawsuits, foreclosure efforts, wage garnishments, liens, and all contact, including phone calls, letters, text messages, emails, and any other methods debt collectors were using to contact you. It is one of the greatest benefits of bankruptcy because it alleviates so much stress, frustration, and embarrassment. The automatic stay lasts the entirety of your bankruptcy, unless a creditor is able to have it lifted by the court.

You’ll begin enjoying the benefits of the automatic stay as soon as you file for bankruptcy. It applies in both chapter 7 and chapter 13 cases, and it requires no action on your part aside from filing. This means the moment you file for bankruptcy, you can relax knowing your property is protected and you won’t be receiving dozens of calls each day related to your debts.

 Am I Guaranteed an Automatic Stay?

If you file for bankruptcy, you are guaranteed protection from debt collection efforts for certain types of debts. For instance, if you have unpaid credit cards or the bank is threatening foreclosure on your home, the automatic stay will prevent any further action.

However, there are certain times when the automatic stay does not apply. This includes:

  • Filing for bankruptcy more than once in a short period of time because your original bankruptcy was denied
  • Chapter 13 bankruptcies that are filed after a chapter 7 bankruptcy was denied
  • Debts related to child support and taxes owed to the IRS

If you are concerned the automatic stay won’t protect you regarding your debts, you should speak to a bankruptcy attorney. They can review your debts and determine how the automatic stay will help. Remember, even if it won’t protect you against all debt collection efforts, it can make your situation better and help you get a handle on your finances.

More on How the Bankruptcy Automatic Stay Helps

In addition to stopping collection efforts regarding credit cards, medical bills, and other unsecured debts, the automatic stay can help in other ways. For instance:

  • It stops utility disconnections. If you’ve fallen behind on paying your electric, gas, water, or phone bill and the company is threatening to disconnect service, the automatic stay will prevent this from occurring for a limited period of time.
  • It stops foreclosure. The automatic stay puts at least a temporary stop on foreclosure efforts. This means you’ll be able to buy yourself a bit of time while you work out how to proceed. It’s possible to exempt your home when you file for bankruptcy, but this is a process. The automatic stay gives you some relief while you and a bankruptcy attorney determine what steps to take to make your financial situation better.
  • For renters, an automatic stay can provide some relief with eviction, though it’s not guaranteed. Much of it depends on where your landlord is in the eviction process, so the bottom line is the sooner you file the better when it comes to protecting yourself from eviction.
  • It ends bank account levies and wage garnishment. There are plenty of people struggling to make ends meet because a debt collector has garnished their wages or their place levies on their bank accounts. Even though garnishment is limited to a certain percentage of your income, it can still make it difficult to survive. This is especially true when money is being taken for an unsecured debt and you’re unable to pay other bills, including your mortgage or your utilities. An automatic stay can result in your keeping all of your income and having an unsecured debt discharged entirely.

Can a Creditor Avoid the Automatic Stay?

Despite the protection it provides, there are instances in which a creditor or debt collector will be able to circumvent the bankruptcy automatic stay. For instance, if you have any of the above-listed debts that are not covered by the automatic stay, you’ll need to begin or continue paying these bills, at least until further notice.

It’s also possible for a creditor to have the automatic stay lifted or removed. This commonly happens in foreclosure proceedings when it’s likely the debtor will lose his or her home in the bankruptcy anyway. If foreclosure efforts are far along, there’s a good chance the court will lift the automatic stay. This means the sooner you file for bankruptcy the better because there’s an increased chance it will help you protect your home.

What Happens If there is a Violation of the Automatic Stay?

There are instances in which a creditor or debt collector continues trying to collect on a debt, even if the automatic stay applies. The good news is when this occurs, you have legal rights.

If a creditor contacts you after the automatic stay is in place, tell them you’ve filed for bankruptcy. In many cases this will be enough to stop collection efforts and they contacted you in error.

If this is not enough to stop collection efforts, notify the bankruptcy court of the problem. The court can sanction the collector for its actions, which can result in fines, payment of attorneys’ fees, and an order to pay damages. This means the creditor will need to pay back any money it collected from you after the automatic stay was in place.

Finally, you might have the option of filing a lawsuit against the creditor or collector if the automatic stay is continually violated.

If you have questions about how the bankruptcy automatic stay works or you are concerned a debt collector is in violation of the automatic stay, we can help. Contact 1.800.220.4318 for more information.

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