If you are facing overwhelming debt, you may feel like you’re drowning and have no options. However, though bankruptcy can seem scary, it is an option and one that can genuinely help you get back on your feet. There are benefits when you file for bankruptcy that protect you.
Many people worry that bankruptcy will simply delay the inevitable, such as a lawsuit, wage garnishment, or a foreclosure, and that their creditors will still come after them. But when you file for bankruptcy, there is something called an automatic stay that stops this from happening, and any creditors that violate the stay will face penalties for doing so.
An automatic stay is a fundamental part of bankruptcy that protects debtors from creditor actions. It goes into effect immediately when you file and protects you from those trying to collect from you, such as creditors, collection agencies, government entities, or any other person coming after you for money.
During an automatic stay, all parties or entities mentioned above are prohibited from collecting on debts you incurred before filing for bankruptcy. This means it can protect you from:
- Home foreclosures
- Wage garnishment
- Vehicle repossession
- Utility disconnection
- Other creditor collections
- Repossession of estate property
Though there are many benefits to the automatic stay, there are some things it can’t stop from happening. These situations include:
- Audits and Tax assessment: An automatic stay will not protect you if a taxing authority audits you, makes demands for unfiled returns that are due, from assessment of taxes, or the prosecution of tax crimes.
- Child Support and Alimony: A stay will not stop a lawsuit pertaining to child support or alimony.
- Criminal Proceedings: If you are convicted of a felony and are ordered to make payments for theft or on debt involved in a criminal proceeding, these collection efforts will not be protected by the automatic stay.
- Pension loans: If you took out a loan against your pension, an automatic stay would not protect you from wage garnishment to repay the loan.
If a creditor willfully violates the rules of an automatic stay, you have a right to alert the court of the violation, and they can be penalized for their actions. You may even be able to recover damages. However, keep in mind that most creditors do not willfully violate automatic stay. If you receive a call after filing, for example, it may be an accident. It is important to let your attorney know if a creditor is contacting you in any capacity after the filing of your case.
Ways a creditor might willfully violate a stay include continuing to make harassing phone calls to collect, taking actions to continue a lawsuit or to garnish your wages after receiving notice of the case filing, sending letters and/or emails, or attempting any other form of communication to collect on a debt.
When the automatic stay is lifted, your creditors can resume certain types of collection activity. An example of this is when the stay is lifted to allow a creditor to continue a foreclosure action against real property or to allow the repossession of a vehicle. The Court allows these actions so that a creditor can recover collateral for which they are not receiving payment. When the stay is lifted in this manner, the collateral is no longer protected, but the creditor cannot pursue payment of the underlaying debt from the debtor. The automatic stay is a temporary protection in bankruptcy. It is generally replaced by the discharge injunction, which is the permanent order of protection provided under bankruptcy law that keeps creditors from pursuing dischargeable debts.
At Sawin & Shea, we believe in providing compassionate and understanding representation to those struggling with debt and looking to file for bankruptcy. Being buried under overwhelming amounts of debt can be debilitating, and the last thing you need is to add more stress to the situation by worrying about your bankruptcy case. Our attorneys have experience in bankruptcy cases and can help walk you through the process every step of the way. We can even offer guidance after your bankruptcy case has ended. If you have questions or concerns about the automatic stay, our attorneys can help. Contact us at 317-759-1483 or send us an email for a free consultation today!