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Using Bankruptcy's Powerful Automatic Stay Tool

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Being in debt can make many feel powerless. However, bankruptcy can be seen as a step in the right direction. One of bankruptcy's most powerful tools is an automatic stay. Read on and find out how to wield this power and what it can do for your financial situation.

What Is an Automatic Stay?

The term "stay" has a legal meaning and it simply means "stop." Stop filing lawsuits against debtors, stop foreclosure actions, and stop trying to collect debts. The stay is automatic — it goes into effect as soon as the bankruptcy case is filed in federal court. For most consumers, the automatic stay provides immediate relief from the constant contact of debt collectors. For a more in-depth look at the powers of the automatic stay, read below.

Powers of the Stay

Chapter 7 filers can expect the below actions to cease. However, some actions may be allowed to continue after a few months. It's also worth noting that some creditors won't be notified right away once your case is filed. If you hear from a creditor after your bankruptcy lawyer has filed your case, you should let the creditor know that you have filed, your case number, and the contact information for your lawyer.

Debt Collections Activity: You may already know how annoying it can be to be harassed by bill collectors. Some, such as those sold to collection agencies, can be incredibly aggressive. The automatic stay works like magic to stop all contact with bill collectors. All creditors know and respect the effect a bankruptcy filing has on debt and will take a huge step back and cease all contact. You cannot even be sent a statement in the mail once your case is filed.

Exceptions to Note: Unfortunately, Chapter 7 does not provide 100% relief for all debts, and creditors representing the following entities may be allowed to continue their efforts to collect a debt:

  • The IRS
  • Student loan servicers
  • Child support enforcement agencies

Vehicle Repossessions: If you have an auto loan, speak to a bankruptcy lawyer about how to handle the debt. While the automatic stay does temporarily stop repossession actions, you must address the debt or risk losing your vehicle eventually.

Real Estate Foreclosures: Your home is safe for the time being. However, mortgage lenders may proceed with foreclosure actions eventually. Let your lawyer know whether you can get caught up on your mortgage to avoid losing your home. 

Wage Garnishment: As soon as you file for chapter 7, a notice will be sent to your employer ordering them to cease removing funds from your paycheck. If the debt can be discharged through bankruptcy, the garnishment will go away.

To find out more, speak to a Chapter 7 bankruptcy lawyer.