When a bankruptcy case is filed, the filer and their property become protected by an “automatic stay.” That term sounds good, but not many people know exactly what it means. The “automatic stay” is like an injunction that immediately stops all creditor collection activities including foreclosures, repossessions and garnishments.
However, the automatic stay is an important benefit of the bankruptcy process and is put in place to make life easier as the individual works to get themselves out of debt and back on their feet financially.
Debt Collection Proceedings
The automatic stay will halt most collection actions by creditors. Once bankruptcy is filed, the court clerk sends notification to all creditors, letting them know that the individual has filed for bankruptcy.
This notification informs them that they no longer are allowed to send notices on the debt, contact the debtor or attempt to collect the debt in any way. When someone files under Chapter 7 bankruptcy, the automatic stay remains in effect until the debts are discharged.
Under Chapter 13 bankruptcy, the automatic stay remains in effect until the repayment plan has been completed. The purpose of the automatic stay is to give debtors a reprieve from their creditors so that they can put their finances back in order.
Certain debts are not affected by the automatic stay. If a court order is in effect and a person’s wages are being garnished for the purpose of paying current child support or alimony, these garnishments may not stop when a bankruptcy case is filed.
Certain actions by governmental agencies, including filing liens for taxes, assessing taxes and withholding, suspending or restricting a driver’s license, a professional or occupational license or a recreational license are not affected by the automatic stay.
Secured creditors may ask the Court to have the automatic stay lifted, but Courts will only do this if there is a valid reason, one that goes beyond wanting to continue receiving payments. The reason must be fairly compelling for the Court to conclude that the stay should be lifted.
Why Is An Automatic Stay Helpful?
One of the main benefits of the automatic stay is that it protects assets while a person is navigating bankruptcy. If you own your home and are going through bankruptcy, the automatic stay keeps the mortgage company from foreclosing on the home.
Even though this debt is not an unsecured one, a mortgage company will receive notice of the case filing and the existence of the stay. Keep in mind that the automatic stay remains in effect during the entire proceeding. Once the proceedings are over, you should be current with payments on your secured debt so that the automatic stay no longer is needed.
With respect to a car, Chapter 13 bankruptcy protects cars from repossession. To be successful in a Chapter 13 case, your repayment plan must repay past due amounts owed on the car. If the debtor does not continue to make some type of payment on the car, the Court may terminate the automatic stay and the car could be at risk of being repossessed.
Most importantly, however, is the fact that the automatic stay allows the debtor to continue living. Bankruptcy filings can protect an individual from evictions from apartments and disconnection of utilities. The stay gives the individual additional time to figure out a way to continue paying utilities to order live in their current home. In certain situations, the stay may be extended.
A bankruptcy attorney can assist in negotiating this under a Chapter 13 repayment plan.
CONTACT AN ARLINGTON BANKRUPTCY ATTORNEY FOR A FREE CONSULTATION TODAY
An experienced Texas bankruptcy lawyer can help you file a bankruptcy case and can help address any concerns you have about the bankruptcy process. Call the Law Office of Marilyn D. Garner now at (817) 409-6919 for a free consultation to discuss how bankruptcy may help you.