When a debtor cannot afford to pay their debts, their creditors have a variety of legal options to try and collect the debts. For the debtor, this can mean letters in the mail, continuous phone calls, wage garnishments, liens, and the seizing of the funds in their bank account among other enforcement actions.
As things snowball, the debtor can find themselves afraid to pick up the phone, and afraid to look at their mail. When things are already pretty bad, it gets worse. The debtor may find that the funds in their bank account were seized or their wages garnished. This is when the panic can really set in. Fortunately, there’s hope and it’s called the automatic stay.
What is the Automatic Stay?
When a debtor files Chapter 7 or Chapter 13 bankruptcy, the “automatic stay” goes into effect. The automatic stay is a court order which stops most collection activities and civil lawsuits dead in their tracks. Once the automatic stay is in effect, creditors have to leave you alone, otherwise they break the law. As soon as the bankruptcy is filed with the court, the collection activities cease – almost immediately.
For debtors, the automatic stay can be a huge relief. In no time at all, the collection calls stop, the collection letters stop, no one can file a lawsuit, and the debtor’s wages are not garnished. This alone is a big incentive for debtors to file for bankruptcy relief.
Some key benefits of the automatic stay:
- It stops collection calls.
- It stops collection letters.
- It stops lawsuits from being filed against the debtor.
- It can temporarily stop a foreclosure (but a Chapter 13 can provide a long-term solution so debtors can keep their homes).
- It can prevent the overpayment of public benefits, such as food stamps.
- It can delay the disconnection of utilities.
- It can stop wage garnishments.
To learn more about the automatic stay under 11 U.S. Code Section 362, click here.
If the automatic stay sounds appealing to you, we invite you to contact our Rancho Cucamonga and Mission Viejo bankruptcy firm to set up your free case evaluation.