What is the Automatic Stay in Bankruptcy?
The Automatic Stay in bankruptcy provides one of the powerful protections given by the Bankruptcy Code. What is it? Under the Bankruptcy Code (11 U.S.C. 362), the filing of a bankruptcy under any chapter of the Bankruptcy Code automatically triggers an injunction that prohibits nearly all types of creditors from any form of debt collection.
The Automatic Stay goes into effect to prevent nearly all collections the day we file your bankruptcy case. The Automatic Stay stops foreclosures. The Automatic Stay stops lawsuits. It stops garnishments. It stops the phone calls from bill collectors. It prevents repossessions. The Automatic Stay tells all your creditors: time out!
Nothing else under the law is as powerful a tool to stop collections. The debt settlement industry cannot promise any such protection. They can’t stop your creditors from calling you, suing you, or garnishing your paycheck. They can only ask them to stop. With the full force of federal bankruptcy law behind us, we can force bill collectors to stop.
Attempting to get some deal by private arrangement with your lenders and creditors may work sometimes. Bankruptcy protection, on the other hand, offers the protection of the law behind it without having to bargain. And even if you do manage to settle a debt outside of bankruptcy, the canceled amount of your debt may even increase your taxes! This is because when a creditor agrees to accept less than the full amount owed on a debt, that creditor must report the “canceled” debt to the IRS on a 1099-C, which is added to your income for that tax year! Bankruptcy will never raise your taxes.
The Automatic Stay is only available with bankruptcy protection. No, debt settlement or debt consolidation companies can’t give promise the protections from creditors that Bankruptcy law already gives you. No debt settlement company advertising that you should avoid bankruptcy, can offer you the protection of the United States Bankruptcy Court and the Automatic Stay. Your creditors are free to sue you, foreclose on your home, levy your bank account, call you nearly every hour while your debt settlement company tries to work something out with your creditors.
We don’t need to beg your creditors to work something out. Consumer bankruptcy is not negotiation. If you’re eligible for Chapter 7 and don’t possess assets over the exemption limits, you can discharge all your dischargeable unsecured debts without any negotiation or any payments. If Chapter 13 is better for you, many, if not all general unsecured debts may still be discharged … without any begging. We don’t have to negotiate. We have bankruptcy law on our side!
And if your debt is discharged in bankruptcy, you won’t owe taxes on the discharged debt to the IRS as you would through debt consolidation under a 1099-C!
What does the Automatic Stay do for me?
Simply put, the Automatic Stay is a tremendous tool for debtors in that it serves to prohibit most contact and continuing collection activity from creditors on debts while your bankruptcy case is pending. For example, the Bankruptcy Automatic Stay prohibits:
- Nearly all creditors (including collections agencies) from corresponding with you at all, including phone calls, demand letters, bills, etc.
- Any creditor from starting or continuing a lawsuit against you.
- Car repossessions.
- Foreclosure proceedings and Trustee Sales.
- Wage Garnishments or bank levies, even if garnishment orders are already in effect.
There are a few exceptions in which the Automatic Stay in bankruptcy cannot help you. These include items such as certain tax audit proceedings with the IRS, and support actions such as collection of child support or alimony.
To immediately stop the harassing phone calls, lawsuits, and other collections against you, contact our bankruptcy attorneys right away for a free consultation. We won’t mess around trying to get your collectors to come to the table. We’ll force them to stop with bankruptcy protection.
