If you’re considering bankruptcy, chances are you’ve been living with debt stress and creditor harassment for a while. Maybe you’re looking into bankruptcy because you’re tired of struggling to make payments and feeling like you’ll never get ahead. Or, maybe you need to take quick action because a debt collector has garnished your wages or you fear that your car is about to be repossessed.
Either way, you probably want quick relief.
The good news is that most consumer bankruptcy petitioners get some important relief as soon as the case is filed. A Chapter 7 case typically takes 4-6 months to resolve, and a Chapter 13 repayment plan stretches across 3-5 years. But, if you’re like most bankruptcy filers, you’ll be able to breathe easier immediately after you file.
That’s because in most Chapter 7 and Chapter 13 bankruptcy cases, an automatic stay is entered as soon as the petition is filed.
What is the Automatic Stay?
The automatic stay is a court order that tells creditors and debt collectors to stop most collection activity. That means no more:
● Collection calls
● Letters from debt collectors
● Wage garnishment
● Auto repossession
● Mortgage foreclosure
● Debt collection lawsuits
For most people who file bankruptcy, it’s a huge relief when the phone stops ringing and the day-to-day fear that a creditor will file a lawsuit or the car will disappear from the driveway eases. The automatic stay can even stop collection activity that’s already underway. For example:
● If a wage garnishment order has been entered, garnishment generally must stop for as long as the stay is in effect--that means most bankruptcy filers with wage garnishments start receiving their full paychecks again soon after filing
● If a lawsuit has been filed, the court proceeding is typically frozen for as long as the automatic stay is in effect--depending on the type of debt and how the case proceeds, that lawsuit may never start up again
● If your automobile has just been repossessed and not yet sold, that process is generally paused--that means you may be able to get your car back through redemption in a Chapter 7 case or by catching up your payments over time through a Chapter 13 plan
Of course, the automatic stay doesn’t put a permanent end to debt collection. You can’t put a permanent stop to foreclosure or automobile repossession with the stay order. But, the collection time-out allows you and your attorney to assess your options and take the next steps. For instance, if you’re facing foreclosure and want to keep your house, you’ll have to pay for it. But, many people facing foreclosure have the means to make current payments and to catch up on the past-due balance. They just can’t do it fast enough to satisfy the mortgage servicer and prevent foreclosure.
The automatic stay provides the breathing room many people in this situation need to work with their attorneys to create a workable Chapter 13 repayment plan. In a Chapter 13 plan, the past-due balance can be spread out across three to five years. And, in most cases, the automatic stay remains in effect as long as plan payments are current.
What if a Debt Collector Continues Collection Activity?
A debt collector or creditor who knowingly continues collection action after receiving notice of the automatic stay is violating a court order. Sometimes, especially right after the stay is entered, creditors and debt collectors make honest mistakes. When that happens, the first line of defense is to tell the creditor or collector that you’ve filed for bankruptcy and an automatic stay is in effect. They may ask you for specific information, such as your bankruptcy case number or your attorney’s contact information, so make sure you keep a copy of your bankruptcy paperwork on hand.
Creditors that continue to violate the automatic stay can be subject to sanctions by the bankruptcy court. So, you should notify your bankruptcy attorney right away if a creditor or debt collector ignores the automatic stay.
Understand the Power of the Automatic Stay
In a nutshell, the automatic stay can put an immediate stop to most debt collection activity, and debt collectors who violate the stay may be punished by the court. The stay is a powerful tool for putting the brakes on and creating the time and space necessary to take the next steps toward financial freedom.
The Judge Law Firm helps people in the Tucson area who are overwhelmed by debt. To learn more about how we may be able to help, schedule a consultation right now. Just call 520-815-1000 or fill out the contact form at the bottom of this page.