How Bankruptcy Can Stop Debt Collectors Instantly

How Bankruptcy Can Stop Debt Collectors Instantly

The two common types of consumer bankruptcy—Chapter 7 bankruptcy and Chapter 13 bankruptcy—offer very different solutions. But, these two debt management options have one very important thing in common: the automatic stay – which can stop debt collectors immediately.

What is the Automatic Stay?

In most consumer bankruptcy cases, an automatic stay takes effect as soon as the petition is filed. The stay is a court order that prohibits most creditors and debt collectors from taking any further collection action while the stay is in effect. For example, the automatic stay can temporarily:

  • Stop debt collectors from calling you
  • Stop collection letters and other demands
  • Prevent a debt collector from filing a lawsuit against you
  • Freeze a lawsuit that has already been filed against you
  • Stop foreclosure
  • Stop repossession of motor vehicles
  • Prevent entry of a wage garnishment order
  • Stop wage garnishment that is already underway

This break in the action provides an opportunity for a bankruptcy petitioner to take stock and move forward.

In a Chapter 13 case, for example, the automatic stay allows time for the debtor and his or her attorney to construct a Chapter 13 repayment plan without worrying about property being repossessed, judgments entered, or wages and bank accounts lost. Then, creditors included in the plan are bound by its terms as long as the bankruptcy case is active and the debtor makes timely payments.

In a Chapter 7 case, the stay typically remains in effect until the case is dismissed or the debtor receives a discharge. However, there are a few exceptions:

  • Under certain circumstances, a creditor may petition the court to lift the automatic stay as to that creditor and allow collection action to move forward
  • Criminal proceedings are not subject to the automatic stay, even if there are financial elements to the case
  • Domestic support obligations such as child support are treated differently than other types of debt

What if a Debt Collector Violates the Automatic Stay?

Ideally, all creditors and debt collectors will honor the automatic stay and halt collection actions immediately. However, collection agencies, debt buyers, and even original creditors don’t always follow the rules. Fortunately, the law is on your side.

When the automatic stay fails to stop debt collectors from pursuing payment, repossessing property, or otherwise attempting to collect from you, you have options. For example:

  • If a debt collector files a lawsuit against you while the automatic stay is in effect, or attempts to move forward with a pending lawsuit, your bankruptcy attorney can typically put a stop to those proceedings by making the court aware of the automatic stay.
  • When and if a debt collector persists in calling, sending letters, or otherwise attempting to collect from you, your bankruptcy lawyer may ask the court to sanction the creditor—in extreme cases, the creditor or debt collector may be required to pay damages.
  • If a debt collector garnishes wages, repossesses property, or seizes property to satisfy a judgment in violation of the automatic stay, the creditor may be required to return that money or property to you.

Learn More about How the Automatic Stay Can Help Stop Debt Collectors

If you’re facing financial hardships and want to explore whether bankruptcy might be the right solution for you, the best time to act is now. Don’t wait until your wages have been garnished, your vehicle repossessed, or other complications have occurred.

Find out how you can protect yourself and your property as soon as possible—just call 440-946-7656 to schedule a consultation with one of our personal bankruptcy lawyers – today!

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