Bankruptcy Automatic Stay

Bankruptcy Automatic Stay

The bankruptcy automatic stay is the protection provided by the bankruptcy process.  The stay refers to the bankruptcy court’s power to stop, or stay, creditors in a bankruptcy case.

And the bankruptcy automatic stay is, well, automatic.  It goes into effect as soon as a bankruptcy case is filed.  Nothing needs to be done.  Creditors are instantly frozen by bankruptcy law.  No longer can those individuals and companies owed money collect freely from you once a bankruptcy is filed.  It is often why people file for bankruptcy.

Filing bankruptcy is particularly useful for those in debt facing foreclosure, repossessions, garnishments and other collection tactics.  Since the bankruptcy automatic stay stops creditors from collecting, it stops all collection efforts.  This includes foreclosures, garnishments, repossessions, levies and the like.

Filing bankruptcy does not mean you can necessarily keep property for which you owe without paying for it.  Homes, cars and other secured debts have to be paid to be kept.  But you can reorganize your debt through a bankruptcy, paying it off under terms you can afford. This means that you can pay potentially less on your car through a bankruptcy than outside a bankruptcy.

Filing bankruptcy may also give you more time to get caught up on a secured debt.  This is particularly so with homes.  If you are behind on your mortgage, your can face foreclosure.  Foreclosure typically allows 90 days to get current on your mortgage.  Don’t do it and your house is sold.  But with the bankruptcy automatic stay, you can stop a foreclosure sale.  This is a common, and useful, bankruptcy tactic.  Your will have to catch up with your mortgage payments.  But a bankruptcy will give you up to five years to do it.  That’s more than the 90 days allowed through foreclosure.  If the mortgage company doesn’t honor the bankruptcy, it’s a big violation.  Or, as documented in this California bankruptcy story, a really big violation.

Whatever may be the reason, protection from creditors is sometimes necessary.  And the bankruptcy automatic stay is the tool for the job!

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