When you file for bankruptcy, your claim is filed with a bankruptcy court. This court will determine whether you are eligible to file, oversee the proceedings, and make a final decision on whether you can discharge your debts.
Once you enter bankruptcy, however, you have powerful protections against your creditors because you get an “automatic stay” which puts a block on your debt from your creditors from collecting.
While the stay is in place, credits cannot garnish your wages, deduct any money from your bank account, or go after any secured assets like your home.
What are the Advantages to Filing for Bankruptcy?
Despite its disadvantages, in many cases, filing for bankruptcy is the correct course of action. The advantages of filing for bankruptcy are:
- Filing for bankruptcy will trigger the automatic stay, preventing creditors from taking action to collect their debts, prevent creditors from repossessing property such as cars, including calling you, suing you, or sending you letters.
- You may be able to discharge your obligation to repay any of your dischargeable debts.
- By using the bankruptcy exemptions, many debtors can go through the bankruptcy process without losing any of their property.
- You will have a restart to your finances and you can start to rebuild a better credit
What is an Automatic Stay?
An automatic stay is an injunction that is issued automatically upon filing a bankruptcy petition that prevents any claims or lawsuits by creditors against the debtor. The automatic stay does not discharge a debt, it merely suspends any proceedings to collect the debt until the stay is lifted or the bankruptcy case ends.
An automatic stay restrains creditors from sending collection letters, calling the debtor regarding collection, suing on the debt, garnishing wages, repossessing property, foreclosing on home mortgages, or any other activity to collect a debt. The stay continues until the bankruptcy case concludes.
How Am I Protected from My Creditors When I File for Bankruptcy?
Once you file for bankruptcy, the bankruptcy court issues what is known as an automatic stay. This stay immediately keeps any of your creditors from taking any action against you or your property.
The automatic stay not only keeps the creditors and bill collectors at bay, but it also offers you other protections. Other protections include temporarily stopping any foreclosure proceedings against you, preventing any utility disconnections for at least 20 days, and stops your wages from being garnished, meaning money will no longer be taken from your paycheck before you receive it.
What If a Creditor Tries to Collect a Debt after an Automatic Stay?
If a creditor tries to collect a debt after an automatic stay has been granted, a contempt of court action may be brought against the creditor.
In a contempt of court action, the creditor will be made to stop the collection attempts, the court may fine the creditor, and the creditor may also have to pay damages caused by a violation of the automatic stay.
If after you have received your automatic stay and the creditor is still contacting or harassing you about the debt, you should notify the creditor that he or she has filed bankruptcy and all communications should be stopped.
A bankruptcy lawyer can also assist you in contacting the creditor to have them stop the calls or communication.
Do I Need a Bankruptcy Lawyer?
Filing for bankruptcy is a very complicated process. Bankruptcy law varies depending on where the action is filed and which chapter of bankruptcy is being pursued. A local bankruptcy lawyer will know the particulars of filing for bankruptcy, can recommend what chapter of bankruptcy is right for you, and can ensure that your paperwork is filed correctly.
If creditors are still trying to collect after a bankruptcy action has been filed, a lawyer may be able to halt such collection efforts and may be able to get you some money damages.