The automatic stay in bankruptcy is a fundamental component of the process. It provides immediate relief to individuals filing for bankruptcy. It goes into effect the moment a bankruptcy case is filed, but it’s possible that creditors might file to have this waived.
Once this automatic injunction is enacted, it stops lawsuits, foreclosures, garnishments and virtually all collection activity against the debtor. Its primary purpose is to provide a respite for the debtor from creditors, collection agencies and other entities seeking to collect debts through phone calls and other methods while the ins and outs of the filer’s case are addressed.
Preventing unscrupulous debt collection
The automatic stay prevents unscrupulous or aggressive debt collection practices by halting collection efforts. Creditors and collection agencies are prohibited from initiating or continuing lawsuits, making written requests for payment or making phone calls demanding payments. This provision ensures that all creditors are treated fairly and that one creditor doesn’t gain an advantage over others in the case.
Impact on garnishments
The automatic stay immediately stops most wage garnishments. This means creditors can’t continue deducting money from the debtor’s paycheck once the bankruptcy petition is filed. This provision can provide significant financial relief to debtors struggling with reduced income due to garnishment.
Effects on foreclosures and evictions
In foreclosure cases, the automatic stay can temporarily halt the process, giving the debtor time to catch up on overdue payments or seek alternative solutions. However, it’s important to note that the stay may not stop an eviction proceeding if the landlord already has a judgment of possession before a bankruptcy case is filed.
Utility disconnections
The automatic stay can also prevent utility disconnections for a certain period. Suppose the debtor is behind on utility bills and facing disconnection. In that case, the stay can provide temporary protection, ensuring that essential services like electricity, gas, water and telephone remain connected while their bankruptcy case is pending.
The automatic stay is only one benefit of filing for bankruptcy. Anyone filing should ensure they’re working with someone who understands their circumstances and can help them understand their responsibilities and what to expect once they file.