Bankruptcy 101: Understanding the Automatic Stay

Filing for bankruptcy is a big decision and one that you definitely don’t want to take lightly. When making the decision, you want to make sure you are informed about how bankruptcy will impact your financial situation, both in good ways and bad. When researching bankruptcy, many people run into a concept called an ‘automatic stay’ and aren’t sure what it means. An automatic stay is actually one of the most important, and most immediate, benefits of filing for bankruptcy, so take a few minutes to learn more about how it can help you.

What Is the Automatic Stay?

To put it simply, an automatic stay is a law that states that creditors (including debt collectors) must halt all attempts to collect debts as soon as bankruptcy is filed. This applies to all types of bankruptcy including Chapter 7, Chapter 13, and Chapter 11. For people who have filed bankruptcy in the past, the stay may not be automatic, however, so make sure to speak with an attorney to fully understanding your situation.

Once the automatic stay is in place, you can stop worrying about the following things as long as your case is in bankruptcy court:

  • Calls from Creditors
  • Car Repossessions
  • Wage Garnishments
  • Foreclosures
  • Lawsuits

Exceptions to the Automatic Stay

While an automatic stay will apply to the vast majority of debts, there are certain exceptions to be aware of. The most common one is any collection of child support or alimony. Criminal prosecution is also not impacted, and IRS audits will continue (the collection of money due will stop in most situations).

Violations of the Automatic Stay

If your automatic stay has been put in place and a creditor continues to contact you, it is important to speak with a bankruptcy attorney immediately. The creditor is likely violating the law, and it may be possible to file a motion for contempt through the bankruptcy courts. If the courts agree that the creditor was in violation of the automatic stay, they can be forced to pay attorney’s fees, and possibly additional punitive damages.

Speak with an Attorney

An automatic stay is just one of the benefits you can achieve from filing for bankruptcy. Learning as much as you can about how the bankruptcy process will impact you is very important. If you would like to get specific details about your situation so you can decide whether bankruptcy is right for you, please contact us to set up a no-obligation consultation.

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