Many debtors filing Chapter 7 bankruptcy wonder whether their creditors can still sue them or garnish wages while they are in bankruptcy. For most debts, the answer is no, due to the Automatic Stay protection afforded the debtor by the bankruptcy code. The protection is automatic and goes into effect upon the filing of the case.
The Automatic Stay prevents most creditors from taking any action against the debtor during the bankruptcy, which usually lasts about four months.
The purpose behind the Automatic Stay is to allow debtors a chance to regroup and avoid creditors while they attempt to eliminate (discharge) some or all of their debt.
For example, once a bankruptcy is filed, a credit card company would not be able to file a new lawsuit, proceed with an existing lawsuit, or even attempt to collect on a judgment from a lawsuit they already won. They are also prohibited from sending demand letters or calling the debtor regarding the debt. After the bankruptcy concludes, the Automatic Stay disappears, but by that time the debts have been discharged so there is nothing for the creditor to collect upon. Most debtors are never bothered by their unsecured creditors again after the Chapter 7 bankruptcy is over.
Secured creditors such as car lenders and mortgage lenders are also affected by the Automatic Stay. However, since they still have a right to the secured property (car or house in most cases) if payments are not being made, they can ask the court’s permission to go after the property during the bankruptcy case if the loan is in default. They must file a motion, but it is usually limited to obtaining possession of the property that is secured. Any remaining balance would be discharged as an unsecured debt. If the debtor wants to keep a secured piece of property, they should try to keep those loans current to avoid repossession or foreclosure.
It is always a good idea to speak with an attorney before filing a bankruptcy to make sure you know what actions the creditors can take during the case, and the possible timing of those actions.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.