Residents of northeastern Illinois and northwestern Indiana are often told that bankruptcy can protect them from creditors' collection attempts, but the exact mechanism of this protection is not always clearly explained. An understanding of a process called the "automatic stay" can help individuals decide whether filing a petition for personal bankruptcy will provide adequate debt relief and perhaps even save their homes from foreclosure.
The "automatic stay" is an order that is automatically issued by the federal court where the personal bankruptcy petition is filed. The automatic stay tells all creditors to immediately stop, that is, "stay," all efforts to collect debts owed by the bankruptcy petitioner. The order applies to all court proceedings, efforts to collect delinquent payments on credit cards, threats to cut off utility services and any other effort to collect a debt that was owed as of the date on which the petition was filed. The stay also halts foreclosure actions and wage garnishment proceedings.
The protection provided by the automatic stay is not permanent. Once the bankruptcy proceeding is concluded, creditors will again be able to pursue their claims. However, the delay provided by the automatic stay gives most debtors the chance to negotiate with their creditors to make other arrangements to retire the debt at issue.
If the amount of money owed to a creditor is large, the creditor may seek permission from the court to lift the stay and continue collection proceedings. Also, the automatic stay will not halt efforts to collect delinquent child support payments.