Before you give in to a debt collector, know your rights.
What is an automatic stay?
An automatic stay is a legal constraint put in place as soon as a person files for bankruptcy, temporarily preventing any creditor from attempting to collect money while the bankruptcy case is open. However, a creditor can try to lift the stay. In addition, some debts are not included in the stay.
Chapter 7 and Chapter 13 bankruptcy cases use the automatic stay. Many times, people who need to file bankruptcy are facing serious consequences, such as having their utilities disconnected or their homes foreclosed on.
The automatic stay gives them a temporary reprieve while they get their financial situations in order and determine their next steps.
For Chapter 13, this usually means setting up a repayment plan, and the stay gives them the time to do that, without losing their homes or facing other dire situations.
For Chapter 7, this prevents foreclosures, wage garnishments and other negative actions until the bankruptcy is final, and those who filed for bankruptcy protection no longer have to pay back these debts.
There are some limits to the automatic stay. Someone still can sue you for paternity, child support or spousal support, and creditors can ask the court to lift the stay for a wide range of reasons.
For example, if you have a secured debt such as a home or car and aren’t making the payments, the court might lift the stay unless you catch up on what you owe.
However, before a stay is lifted, there must be a hearing and the creditor must provide a good reason for the court to lift the stay. If a creditor attempts to collect on the debt or sue without the permission of the court, the debtor can then sue the creditor.
Automatic stay example
If you owe on several credit cards and are so behind on your mortgage payments that your lender is threatening foreclosure, these creditors can’t legally do anything to you once you file for bankruptcy and the stay is put in place.
This means they can’t take your home or put a lien on it, and can’t garnish your wages, sue you in court or levy your bank account to get the money you owe them.