Many people in debt find themselves hounded by bill collectors. They receive telephone calls from bill collectors all day long, sometimes at work. They also receive threatening letters in the mail from attorneys and collection agencies. Dealing with bill collectors adds unnecessary stress to lives that are already made stressful by unmanageable debt. Filing bankruptcy puts an end to daily calls from bill collectors.
Whether you file a chapter 7 bankruptcy to liquidate your debts or a chapter 13 debt repayment plan, the Bankruptcy Court will issue an automatic stay as soon as you file your petition. The stay prevents creditors from taking action to collect their debt from you without first obtaining the court’s permission.
- Bill collectors cannot call you. Collection agencies cannot send you letters.
- Creditors cannot sue you.
- Your landlord cannot knock on your door and demand payment of back rent.
The automatic stay gives you a break from the harassment of bill collectors. It also requires any pending lawsuit for the collection of a debt to be put on hold until the Bankruptcy Court decides whether to discharge that debt.
The automatic stay applies to wage garnishments. As soon as your creditor receives notice of the stay, your creditor is required to end the garnishment of your wages.
If you are behind on rent payments and your landlord is threatening eviction, the automatic stay will prevent your landlord from filing an eviction proceeding in court. If the landlord has already obtained an eviction order from a court, however, the automatic stay won’t prevent the landlord from enforcing that order.
Exceptions to Automatic stay
The automatic stay does not apply to utility companies, although a different section of the Bankruptcy Code prevents utilities from disconnecting your service during the first 20 days after you file bankruptcy. The automatic stay does not affect legal proceedings to collect child support or alimony, the collection of certain loans from pension plans, and certain procedures to collect tax debts.
Relief From the Stay
In some cases, particularly in a chapter 7 bankruptcy, a creditor can seek relief from the automatic stay. The creditor does that by filing a motion with the Bankruptcy Court asking for permission to continue collection efforts. Landlords are entitled to relief from the stay to pursue an eviction if they can prove that you are using drugs on their property or are damaging the leased premises.
In a chapter 7 bankruptcy, secured creditors can ask the court for permission to file (or continue) a lawsuit to foreclose a mortgage, repossess a vehicle, or gain possession of other property that was used as collateral for the debt. You will need to talk to your bankruptcy attorney about your options to prevent foreclosure or repossession.
In a chapter 13 bankruptcy, if your chapter 13 plan is confirmed by the court, relief from the automatic stay is rare. Even secured creditors are required to live with the payments they receive under a confirmed chapter 13 plan and they cannot pursue other avenues of collection while the plan remains in effect.
Bankruptcy is complex and many answers depend upon your specific situation. If you still have questions you can schedule a free consultation with a bankruptcy attorney.