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What is an automatic stay in bankruptcy?

On Behalf of | Aug 26, 2022 | Bankruptcy

California residents who have massive debt may have no alternative but to file for bankruptcy. After the filing, an automatic stay goes in place. Many people don’t know what this achieves.

The automatic stay in bankruptcy

Whether a person files a Chapter 7 or a Chapter 13 bankruptcy petition, an automatic stay will go in place. It is an injunction that puts a stop to calls from creditors or collection agencies to debtors about paying back their debts. The automatic stay also puts a stop to harassing phone calls and letters threatening lawsuits. When it takes effect, it tells the consumer’s creditors and debt collectors that if they continue trying to contact them, they will be in violation of the law.

How the automatic stay works

An automatic stay doesn’t permanently provide a filer relief from having to pay back their debts. However, it can give them some time to catch their breath to work on their financial situation before creditors can try to collect the debts they owe.

In addition to helping the consumer, an automatic stay can also benefit creditors. It ensures that each creditor is on even keel so that one cannot gain an advantage over another when it comes to recovering the debt they are owed.

An automatic stay can help prevent eviction if you rent or foreclosure if you own a home. It can also help prevent your utilities to be disconnected if you owe toward your utility bills. It can prevent wage garnishment as well.

Certain actions cannot be stopped with the automatic stay. For instance, if you have been ordered to pay child support or alimony as part of a divorce settlement, you still have to pay. Anything ordered as part of criminal legal proceedings must also be paid.

If you have filed for bankruptcy, you should keep a copy of your case number in the event that your creditors violate the automatic stay and try to contact you.