What is the automatic stay granted during bankruptcy?

On Behalf of | Jul 10, 2023 | Bankruptcy |

People who choose to file for bankruptcy may have any number of reasons for doing so. They may have simply reached a point where their budget won’t balance, and they have begun to accrue over-limit or late payment fees that make their financial circumstances even worse.

Other times, they may have had a creditor serve them with paperwork for a lawsuit, or they feel worried about the possibility of a foreclosure or repossession attempt. People often time bankruptcy filings in a certain way to address aggressive collection efforts because the courts will grant an automatic stay as soon as their bankruptcy case is filed. Those who understand the automatic stay are, therefore, in the best position to make an informed choice about whether and when to file.

What is the automatic stay?

An automatic stay is essentially an order to halt all collection activity. Bankruptcy can take months or even years to complete, and it would not be nearly as beneficial if individuals would still have to endure collection activity during that entire time.

The same day that someone submits their bankruptcy paperwork to the courts, the courts send notice to the credit bureaus and a filer’s creditors about the pending bankruptcy case. Most lenders and collection companies subscribe to services that provide them with immediate notice when any Social Security number associated with one of their accounts is part of a bankruptcy filing. Those businesses will usually dismiss lawsuits on their own and also cease collection activity immediately.

Occasionally, some will still attempt to contact the person who filed for bankruptcy. That individual would typically only need to provide the basics of the bankruptcy case to the collection agent to halt future attempts to contact them. However, the automatic stay is neither permanent nor absolute.

If the courts dismiss the bankruptcy, collection activity will resume. Additionally, creditors can file a request with the courts to continue their debt collection efforts or to exclude their debts from the discharge granted at the end of the bankruptcy process. For the most part, an automatic stay means that there will no longer be any aggressive letters or unpleasant phone calls made related to someone’s past-due financial obligations.

Many people time their bankruptcy filings a certain way because they need the protection of an automatic stay. Learning more about the basics of the opportunities that a bankruptcy filing offers may help someone to see the benefits of asking the courts to discharge their debts.