Facing financial hardship is never easy, but modern-day collection efforts add a special kind of pain for anyone who has fallen behind on their financial obligations.
Filing a petition for discharge (Chapter 7) or rearrangement of debts (Chapter 13) may seem unpleasant, but bankruptcy has a feature that can put an end to unwanted collection efforts and provide a significant amount of relief: the automatic stay.
The basics of the automatic stay
A stay is a court order that prohibits a party from taking the actions described in the stay order. When an individual files a petition under either Chapter 7 or Chapter 13 of the Bankruptcy Code, the clerk of the bankruptcy court automatically serves all creditors of the debtor who filed the petition with an order staying – that is, halting – all collection activities.
Once served with the stay order, a creditor can no longer pursue certain collection activities. Collection activities that are prohibited by the stay include the commencement or continuation of any judicial proceeding to collect a debt or enforce a lien against property of the debtor.
The stay lasts until the proceeding is ended by an order from the bankruptcy judge adjudicating the financial status of the debtor.
Exceptions to the automatic stay
Certain actions are not barred by the automatic stay. Those proceedings include a proceeding to determine paternity, establishment or modification of an order for domestic support or concerning child custody or visitation, termination of a marriage, domestic violence or reporting overdue support.
The Bankruptcy Code contains a number of other exceptions to the automatic stay, but these exceptions do not affect most petitioners.
Anyone who is contemplating filing a petition under either Chapter 7 or Chapter 13 may benefit from a consultation with a knowledgeable bankruptcy attorney who can evaluate the individual’s financial situation and provide advice on the effect of the automatic stay.