When a bankruptcy case is filed, the bankruptcy code provides a protection that goes into effect automatically. That protection is called the “automatic stay.” The automatic stay stops most creditors from continuing or starting any action against the debtor to collect on a debt incurred prior to the bankruptcy filing. Such actions include lawsuits, collection letters, phone calls from collectors, wage garnishments, bank levies, and any other similar efforts to initiate or continue collection.
The automatic stay is designed to assist the debtor with obtaining a “fresh start” without having to deal with collection activity and/or lawsuits. It also avoids wasted time by state courts (where most collection lawsuits are filed) because the debts sought in most collection actions are likely to be eliminated by the bankruptcy discharge anyway.
When a bankruptcy is filed, the creditors listed by the debtor in the bankruptcy schedules are notified by the bankruptcy court of the new filing, and any actions those creditors take against the debtor after the filing of the bankruptcy case are potentially void and, in most cases, a violation of the automatic stay provisions. While there are some types of debts that are not covered by the automatic stay, most debts and creditors must stop their collection efforts immediately. It is very important for debtors to list all their creditors (to the extent possible) to insure the creditors are properly notified of the bankruptcy filing.
The automatic stay generally lasts until the bankruptcy case is closed. However, in some cases, depending on the type of creditor, the automatic stay can be removed as to a particular creditor prior to the closing of the case. A creditor that wants to remove the automatic stay prior to the end of the case must file a motion with the court and get the judge’s permission. These motions are usually filed by mortgage or car lenders who are trying to get property back due to a loan default. In some cases, the debtor can defend the motion to keep the automatic stay in place until the end of the case.
The automatic stay is a protection that allows debtors to get through their bankruptcy case and eliminate debt without harassment from creditors.
For more information or a consultation, please call 661-210-5657 or e-mail mjf4bk@ca.rr.com .