When filing bankruptcy, the automatic stay means that all collection activity must immediately cease. Under section 362 of the United States Bankruptcy Code, the automatic stay begins the moment the bankruptcy petition is filed. This means that collection activity against a bankruptcy filer (harassing phone calls, wage garnishment, even a foreclosure) must immediately stop. People find this a major benefit as it suddenly means more money in their pocket and a return to normalcy. Our bankruptcy attorneys in St. Charles & Troy can discuss the automatic stay in more detail and the benefits you can expect from it based on your individual circumstances.
One of the biggest benefits for filers is that it temporarily puts foreclosure on hold. This means that if you are about to lose your home, you can actually stay for a few extra months mortgage-free. This allows a person to save up some money for a new apartment to get back on their feet. It is important to note, however, that a person needs to keep paying their utilities lest they find them shut off.
Ending wage garnishment is another big benefit for someone filing bankruptcy. Suddenly a person will have their full paycheck again and won’t find a portion of it going to pay back creditors. For someone of limited means or someone with a particularly large portion of their paycheck going to pay creditors, this can mean a significantly larger paycheck.
In a typical Chapter 7 bankruptcy, the automatic stay remains in effect until the debtor is discharged or the case is closed or dismissed. However, there are certain circumstances (multiple filings in one year, for example) that will limit the duration of the stay.
Unfortunately, an automatic stay is not absolute. Creditors can file motions to ask a bankruptcy court to remove the stay. If successful, the creditor may continue attempting to collect the debts. While creditors can file motions, they do not always take that route. The creditor must convince the court there is a good reason the court should lift the stay. Most courts will not lift a stay on an unsecured debt that will be included in the debtor’s discharge.
Courts may consider lifting automatic stays in some cases. For example, secured creditors may ask for the stay to be lifted since there is the property that is collateral if a person is not making payments or the property is not adequately protected. Some unsecured creditors and other parties may seek to lift an automatic stay. This may be granted if it is an unsecured debt that cannot be discharged in bankruptcy like back child support, spousal support, or criminal restitution. For those who are renting, a landlord may file a motion to lift the stay in order to collect rent due. This would apply to rent accumulated since the bankruptcy filing, but not usually rent from before the bankruptcy filing, since that may be discharged.
Any attempts by a creditor to repossess property or take other actions against the filer during an automatic stay has no legal effect. Meaning, if a creditor repossesses a car, for example, they will have to give it back to the debtor and cease all attempts to collect payment. The creditor will only incur a penalty if it can be proven that they knowingly violated the stay.
No matter whether you choose to file Chapter 7 or Chapter 13, all debt collection activity will immediately stop once you file. A bankruptcy attorney can discuss your options and help you find the option that is best for you and your family. Bankruptcy is a big decision that should not be entered into haphazardly or without adequate consideration. A lawyer can discuss your options and give you information on making the right decision based on your individual circumstances.
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At Westbrook Law Group, we know how stressful it can be to suffer from debt problems. We work compassionately with our clients to find the best option for them. To speak with a bankruptcy lawyer about your particular situation, contact our St. Charles or Troy office today for a free consultation.