Bankruptcy considerations: What is the automatic stay?

On Behalf of | Apr 6, 2023 | debt relief |

Individuals who choose to file for bankruptcy are often tired of having to deal with creditors calling them in an effort to collect money. Because creditor harassment can be emotionally draining and the risk of collection actions can be truly stressful, many bankruptcy filers are particularly appreciative of the automatic stay that occurs as soon as the court receives a filer’s bankruptcy petition.

If you choose to file for Chapter 7 or Chapter 13 debt relief, the bankruptcy automatic stay will provide you with temporary relief from your creditors and allow you the time and space to reorganize your financial affairs under the supervision of the bankruptcy court.

Collection activity

Once the automatic stay is in place, most creditors are legally required to stop their collection efforts against you. This includes phone calls, letters, wage garnishments, repossessions and lawsuits. This puts creditors on an even field for collecting money. The trustee assigned to your case has to follow a certain order in re: how creditors are paid. The automatic stay prevents them from skirting that order to try to get more than their fair share after you file for bankruptcy.

Utility disconnection

If you’re behind on utility payments and facing disconnection, the automatic stay will temporarily prevent utility companies from disconnecting your services. This protection typically lasts for at least 20 days.

Eviction or foreclosure

The automatic stay may temporarily stop eviction proceedings, depending on the specific circumstances of your case. However, it may not offer long-term protection if your landlord has already obtained a judgment for possession or if the eviction is based on endangerment or illegal drug use on the property.

The automatic stay can temporarily halt foreclosure proceedings on your home. This can give you a chance to work out a repayment plan or explore other options to save your property.

The automatic stay is not permanent and some exceptions to its protections may apply. For example, certain types of debts, such as child support or alimony, are not subject to the automatic stay. Additionally, creditors can request that the stay be lifted in specific circumstances, such as a recent bankruptcy discharge. It’s crucial to understand the purpose and limitations of the automatic stay so you can take action if creditors fail to comply.