When you file bankruptcy, no matter whether it’s a Chapter 7 or a Chapter 13, the law requires your creditors to stop all proceedings and actions against you. This part of the bankruptcy law is called the Automatic Stay. Once you have filed your bankruptcy, but not before, your creditors must stop all phone calls, letters, garnishments, foreclosures, lawsuits, repossessions and other collection activity.
While the automatic stay is incredibly powerful and provides significant relief, there is more to the story. The automatic stay cannot generally stop IRS audits, spousal or child support actions, criminal proceedings or repayment of a loan from a pension. Additionally, if your home is in foreclosure and you file a Chapter 7 bankruptcy, the actual foreclosure will be delayed for a period of time, however, the creditor will most likely request “relief from the automatic stay.” The court, if you have no non-bankruptcy means to save your home, will often grant such relief. If it does grant such relief, the foreclosure proceedings will start again. So if you are looking to save your home and can submit a feasible payment plan, a Chapter 13 can be used to both stop a pending foreclosure and allow you to get caught up on the mortgage and save your house.
Similarly, if your car is about to be repossessed, a bankruptcy can stop such action for a period of time. But, as with a house, you will need some plan to be able to get current with your car payments or the creditor will ultimately be able to proceed with repossession.
Perhaps the most vital use of the automatic stay is to stop a wage garnishment. If a creditor has a judgment against you and is garnishing your wages to the tune of 25% each paycheck, stopping the garnishment can be essential to basic survival. A garnishment will stop on the day you file your bankruptcy.
The law permits this opportunity to stop your creditors and allow you to reorganize your financial affairs or get a completely fresh start. If you find yourself in one or more of situations talked about here, please give us a call.
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