How the automatic stay shields debtors from collection activity

 Posted on August 10, 2021 in General Bankruptcy Topics

Many people file bankruptcy to shield their remaining assets from collection proceedings by their creditors. Unless these debtors have filed a bankruptcy previously, they may have no awareness of the automatic stay and how it can protect them from ongoing collection actions.

How the automatic stay works

A "stay" is a court order that directs a party to stop pursuing a designated action. In bankruptcy, the automatic stay a powerful took that shields debtors from collection efforts. The stay forces creditors to cease all collection activity, including phone calls, collection actions, foreclosures, evictions, and garnishments. The stay remains in effect until the bankruptcy court issues an order discharging the debtors' obligations.

The automatic stay does not protect certain obligations. These obligations include child support payments, alimony payments, certain tax debt obligations, and criminal proceedings that involve both a debt and criminal portion. In this latter example, the automatic stay will stop the debt portion of the proceeding, but not the criminal portion. Creditors can ask the court to lift the stay as to their claims, but such motions require a heavy burden of proof, and must show that the automatic stay is not serving its intended purpose. Additionally, the automatic stay will terminate after 30 days if you have filed for bankruptcy in the previous year.

Help with bankruptcy proceedings

Every financial situation is different, so it is wise to thoroughly explore your options before deciding on a course of action. The government designed the Bankruptcy Code to give Americans a roadmap toward a stable financial future by clearing unsecured debt and protecting the individual from mounting debt. Do not hesitate to seek legal guidance with questions about your financial peril.