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What you should know about automatic stays

Among the relief that filing for bankruptcy brings is what’s called an “automatic stay” on collection efforts by creditors. As one attorney says, “One of the reasons individuals ultimately file for bankruptcy is just to stop the harassment that goes on in the process of collection.”

The stay is referred to as “automatic” because it takes effect as soon as a person files their bankruptcy petition. Among the debt collection enforcement activities that a stay is intended to freeze (in addition to calls and other notifications to the debtor) are:

  • Home foreclosure
  • Car repossession
  • Wage garnishment
  • Holds on bank accounts
  • Certain elements of divorce proceedings, like property division

Typically, the stay remains in place throughout the bankruptcy process. However, in some instances, a bankruptcy judge will lift a stay to provide relief for individual creditors. For example, if a home has less equity in it than the homeowner owes, the lender can proceed with foreclosure efforts.

There may be a period after a stay has taken effect when creditors and collectors aren’t aware of it. However, if a creditor intentionally continues collection efforts once they know about the stay, the debtor may be able to take legal action against them, and the creditors may be subject to penalties as well.

Bankruptcy law can seem daunting and complicated. That’s why it’s wise to have experienced legal guidance as you go through the process. A bankruptcy attorney can help ensure that you follow the correct procedures. They can also work to protect your rights and to help you mitigate the negative impact of bankruptcy on your life.

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