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What is an Automatic Stay in Bankruptcy?

Automatic-Stay-in-Bankruptcy

Automatic Stay: The instant that a Bankruptcy Case is filed an injunction called the Automatic Stay is put into place, with certain exceptions, to prevent creditors from continuing collection actions of any kind.  This includes continuation of lawsuits, phone calls, emails, letters, etc. that seek to collect a pre-petition debt.   

The Automatic Stay is the first benefit of filing for Bankruptcy.  The Automatic Stay prohibits the continuation or filing of lawsuits, stops foreclosures, car repossessions, etc.

What does automatic stay prevent?

Eviction

Getting evicted can be stopped with the automatic stay, that is if your landlord does not have a judgment for possession against you yet. The Automatic Stay along with a Chapter 13 Bankruptcy could provide an opportunity to pay the back rent and continue to stay in your home.

Foreclosure

An automatic stay can stop a foreclosure proceeding. Further, depending on the chapter of Bankruptcy a Debtor files, the Debtor may be able to repay arrears and save the property. If the Debtor is filing for Chapter 13 and can afford their monthly obligations in addition to repaying the mortgage arrears they can likely stay in their home while repaying the arrears over the life of the Chapter 13 Plan. However, if you file for Chapter 7, the relief might only be temporary if you do not have another mechanism that lets you keep your home, such as a refinance, loan modification, repaying arrears directly, etc.

Utility Shutoffs

Suppose a company is threatening to disconnect a service (gas, electric, phone, or water) because you are behind on your bill. In that case, an automatic stay will prevent the shutoff for at least 20 days. While the amount of the bill itself usually does not justify a bankruptcy filing, it makes sense to file if you have other debt that you can discharge. 

Wage Garnishments/ Bank Levies

When you file for bankruptcy, you can expect garnishments and bank levies to stop. A wage garnishment or bank levy are legal procedures where your earnings are required to be withheld by a court order or the funds in your bank account are frozen by a court order to pay off a debt or debts. Besides taking home a full salary, it is also possible to discharge the underlying debt that precipitated the garnishment or levy in addition to other qualifying debts like personal loans in bankruptcy. Remember that commonly garnished debts, such as child support, and alimony will not be removed. 

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