When debt becomes overwhelming, filing for bankruptcy can offer the debtor a fresh start. One of the most powerful aspects of bankruptcy is the automatic stay that immediately takes effect upon filing a bankruptcy petition. The stay acts as a shield against creditors, giving the debtor a much-needed refuge.
These are the principal benefits of the automatic stay:
- Pause of legal actions — The automatic stay puts a stop to legal proceedings, both new and ongoing. Whether it’s a foreclosure proceeding, a wage garnishment or a repossession action, the automatic stay forces creditors to wait for the court to determine their ability to proceed.
- Collection efforts halted — The automatic stay freezes any collection activity related to debts that existed before your bankruptcy filing. This means creditors are prohibited from calling you, sending collection letters or taking any other steps to pressure you into repayment.
- Judgments held at bay — If a creditor obtained a judgment against you before your bankruptcy filing, the automatic stay prevents them from enforcing it. This means wage garnishments, bank account levies and other methods of collecting on the judgment are put on hold until the bankruptcy court decides how the debt will be treated.
- Protecting your belongings — Creditors are prohibited from repossessing your car, foreclosing on your home or seizing any other assets that are subject to the bankruptcy case. This prevents further financial loss and allows the court to determine the fate of these assets.
- Preventing lien enforcement — The automatic stay stops creditors from creating, perfecting or enforcing liens against your property, such as mortgages and car loans. While these liens might still hold validity after the bankruptcy case concludes, the automatic stay prevents them from worsening your financial situation during the proceeding.
- Setoff rights held in check — The automatic stay prevents creditors from exercising their right to setoff. This means if you owe money to a creditor and they also owe you money (perhaps for a deposit on a canceled service), the automatic stay prevents them from simply deducting what you owe from what they owe you.
- Certain tax liabilities on hold — The automatic stay can also temporarily halt certain tax proceedings against you. This includes the commencement or continuation of proceedings before the U.S. Tax Court concerning pre-bankruptcy tax liabilities. However, tax authorities have more leeway in pursuing tax debts compared to other creditors.
While the automatic stay offers significant protection, it’s not all-encompassing. Certain legal actions can still proceed despite the stay. These include actions to protect the creditor’s real estate property and proceedings related to child support or alimony payments. A qualified bankruptcy attorney will make sure you can take advantage of the full scope of the automatic stay.
Jeff Field & Associates in Scottdale guides Georgia residents through all phases of Chapter 7 and Chapter 13 bankruptcies. To schedule an appointment, call 404-381-1278 or contact us online.