The months, weeks and years leading up to the decision to file for bankruptcy can be filled with stress. While some of the anxiety may be caused by the financial burden weighing upon you and your family, some of it may be directly linked to harassing calls and pressure from collection agencies wanting payment, landlords attempting eviction or banks threatening foreclosure. When you file for bankruptcy, something called ‘the automatic stay’ immediately stops any lawsuit filed against you and most actions against your property by a creditor, collection agency, or government entity. Under section 362 of the United States Bankruptcy Code, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. For the average debtor this can mean a bit of a reprise from the financial anxiety. In many ways bankruptcy can be a fresh start and a release from the stress that has been ongoing during this financial crisis.
How Can the Automatic Stay Help?
- Utility Disconnections– If you’re behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service, the automatic stay will prevent the disconnection for at least 20 days.
- Foreclosure– If your home mortgage is being foreclosed on and you fear losing your home, the automatic stay temporarily stops the proceedings, but the creditor will often be able to proceed with the foreclosure sooner or later. Talk to your attorney regarding your mortgage and what type of bankruptcy will be best for your housing situation.
- Wage Garnishments – Wage garnishments occur when a creditor obtains a judgment against you and withholds part of your wages to satisfy the debt you owe. However, when you file bankruptcy, the wage garnishment must be stopped, which allows you to collect 100 percent of your wages until such time as the court determines the garnishment should proceed or until your bankruptcy is settled.
- Eviction – Filing for bankruptcy will not relieve you of your obligation to pay rent, although it may help with any arrearages, depending on your situation. If you are behind in rent, but the landlord has not yet gotten an eviction order from the court, then the automatic stay that results from filing for bankruptcy will stop the eviction, unless the landlord successfully files a motion with the bankruptcy court to lift the automatic stay. However, once the bankruptcy petition is filed, you will have to stay current with rent payments; otherwise, the landlord can evict you, because the automatic stay does not affect any debts incurred after the filing.