Bankruptcy: How the Automatic Stay Keeps Your Creditors at Bay

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If you are going into debt and worried about folks coming after you for payments or taking away your possessions, you should know about a temporary remedy called “the automatic stay.”

What is the Automatic Stay?

It’s a really valuable break that allows the borrower a set amount of time to sort out their financial affairs and take a breather from creditors. In fact, the moment bankruptcy is filed, this injunction goes into effect. At that point, all efforts by debt collectors must cease and desist. They are forbidden to call you, mail you, or contact you in any way.  They can’t advance any administrative efforts, and all legal action that took place prior to filing of bankruptcy becomes null and void. They can’t even garnish wages, attempt to seize property, overtake control of your assets or put you on notice for a lien. Even the IRS has to back off.

It Doesn’t Last Forever

An automatic stay only lasts for a period of time, and the amount of time is contingent on a few things. They are:

  • The power of automatic stay is limited, and if a debtor’s bankruptcy case has been dismissed within a year, it is only in effect for 30 days (or longer with a court-approved extension). If the case has already been dismissed twice, then the debtor will not receive the automatic stay at all.
  • If the rights of the creditor are infringed upon by avoiding foreclosure or vehicle repossession, the court may remove the automatic stay. This is why it is important to make every effort to bring these items current if you can, even if this means you have to reorganize your finances.
  • It is important, though, to understand that a creditor may try to get a court order to lift the automatic stay if they believe they can convince them that there is a good reason.

The truth is, bankruptcy rules can get very intricate, and confusion in this arena is common. A dismissed case can cause a lot of anguish, and a bankruptcy lawyer can help you to prevent this from happening, and if necessary, they can help you even if your case is dismissed. It is crucial that all filing is done right the first time.

What Automatic Stay Does NOT Do

Although it is nice, this relief is not going to completely wipe the slate. Unfortunately, if you have these other issues, know that you will still have to deal with these during an automatic stay.

Automatic Stay does NOT:

  • stop criminal proceedings against the debtor
  • stop personal legal matters such as divorce, child support, and property rights, and a variety of other matters.
  • Stop suspension or revocation of a driver’s or occupational license

What if a Creditor Violates The Automatic Stay?

A creditor should be aware of your new bankruptcy status when you file, and if they still insist on violating the automatic stay by contacting you for collection, know that you have the legal right to seek actual AND punitive damages. In fact, your legal fees should be covered as well in this case. If this has happened to you, don’t let any time waste. Contact a bankruptcy lawyer by going here for help.