Many debtors filing Chapter 7 bankruptcy wonder whether their creditors can still sue them or garnish wages while they are in bankruptcy. The answer is generally 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 pendency of the bankruptcy, which usually lasts about four months. The purpose behind the Automatic Stay is to allow debtors a chance to breathe 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 already existing lawsuit, or even attempt to collect on judgment from a lawsuit they already won. And, after the bankruptcy ends, even though the Automatic Stay ends at the same time, the creditor usually has no debt to pursue at that point because of the discharge. Thus, most debtors are never bothered by their unsecured creditors again after they file Chapter 7 bankruptcy.
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 interest (the car or house) if payments are not being made, they can ask the court’s permission, during the case, to go after the security. They cannot pursue the debtor for any money if the debt will be discharged, but they can get the property back unless the debtor keeps the payments current.
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 likelihood of those actions.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.