When you file for bankruptcy, you hope that it will immediately improve your financial circumstances. And as a result of the automatic stay, that’s exactly what happens.
In short, the automatic stay is designed to stop most collection activity by creditors, which gives you room to breathe and peace of mind. It’s not the only reason to file for bankruptcy, but it’s definitely something to strongly consider if you’re on the fence.
Once the automatic stay is in place, creditors are not permitted by law to contact you. This stops creditor harassment, while also buying you enough time to devise a plan for moving forward.
Here are some of the many circumstances in which an automatic stay can help:
- Past due accounts: For example, if you’re past due on a credit card account, you may get tired of hearing from the creditor and/or collection agency every day of the week. As long as they’re following the letter of the law, you can’t do much to stop them from reaching out to you. However, with an automatic stay in place, they are legally required to cease all collection activity.
- Foreclosure: If your mortgage lender is in the process of foreclosing on your home, the automatic stay will stop the process for the time being. For example, if you’re filing for Chapter 13 bankruptcy, you can restructure back payments in the hope of staying in your home in the future.
- Utility disconnections: If you’re behind on a utility payment, such as your water or electricity, your provider may threaten to shut off service if you don’t catch up. The automatic stay will prevent this for a minimum of 20 days.
- Wage garnishments: If your wages are garnished for any reason, the automatic stay will stop it for the time being. Keep in mind that this doesn’t have any effect on wage garnishment related to child support or alimony.
If creditor harassment has you down and out, consider the benefits of the automatic stay upon filing for bankruptcy. It won’t solve all your financial problems, but it will ensure that you don’t hear from creditors for the time being.
Once you understand bankruptcy process, the automatic stay and your legal rights, you’ll know what to do next.