The discharge at the end of the bankruptcy process is what attracts most filers. People feel excited at the prospect of eliminating certain financial obligations. Successful personal bankruptcy cases can eliminate credit card, medical debt and other unsecured financial obligations.
However, the bankruptcy process can be relatively lengthy. A Chapter 7 filing takes months to resolve. Chapter 13 bankruptcy typically requires a minimum of three years to complete. Filers might be at risk of major financial setbacks in the time between when they file for bankruptcy and when they complete the process. Thankfully, the courts provide an automatic stay that can alleviate some of the financial pressure on those in need of bankruptcy relief.
What is an automatic stay?
An automatic stay is a form of legal protection that prevents collection activity. The courts typically release information to the credit bureaus about the pending bankruptcy case. Many creditors have automatic services that notify them when a debtor or account holder files for bankruptcy. They then immediately note that individual’s account and terminate collection activity. Individuals protected by an automatic stay should not receive collection phone calls or notices from their creditors.
In fact, creditors who file lawsuits in the hopes of securing a lien against valuable property or an order to garnish an individual’s wages may have to dismiss the pending lawsuit. Until the courts either approve or dismiss the bankruptcy filing, the filer can avoid aggressive collection efforts.
How long does the automatic stay last?
Typically, an automatic stay takes effect immediately when an individual files for bankruptcy. In some cases, they may need to provide verbal notice to creditors who call them shortly after they file. The automatic stay usually remains in effect for the duration of the bankruptcy process, but there are certain exceptions to that rule.
The protection of an automatic stay is different in scenarios where people have repeatedly filed for bankruptcy, especially if they have multiple recently dismissed cases. Additionally, creditors can initiate adversarial proceedings to lift the automatic stay and resume collection activity in special circumstances.
For those worried about vehicle repossession, foreclosure or creditor lawsuits, an automatic stay can provide peace of mind. Choosing the right time to file for personal bankruptcy can help people prevent aggressive collection tactics from worsening their financial circumstances.