Debtor relief from creditor harassment—the “automatic stay”

One of the key benefits of filing for Chapter 7 or 13 bankruptcy protection is the relief it can provide from creditor harassment. A bankruptcy proceeding creates an “automatic stay” on creditors seeking payment from you.

A “stay” in legal terms simply means that activities related to collections against you must stop or are suspended in place while the bankruptcy process is allowed to move forward. This stay takes effect immediately, once you file your bankruptcy petition.

Suspending creditor actions

By freezing activity while the bankruptcy proceeds, the process ensures that one creditor does not rush in and attempt to collect to the detriment of other possible creditors. However, from a debtor’s perspective, it provides welcome breathing room to review the situation and consider options.

The powers of the automatic stay are set out the federal bankruptcy code. Specifically, it provides relief from many actions, including:

  • Attempts to take possession or control of your property;
  • Any act to enforce a lien against a property, such as foreclosure proceedings on a home;
  • Efforts to garnish your wages in many situations;
  • Shutting off of utility services, generally for a period of approximately 20 days.

In other words, the stay operates to halt most harassment and collection efforts by overbearing creditors.

Exceptions to the automatic stay

It is important to note that the law also specifies that some actions are not suspended by the automatic stay, including but not limited to court actions involving:

  • Paternity, establishing or modifying domestic support obligations, seeking a divorce or child support or custody.
  • Domestic violence.
  • Suspension or restriction of a driver’s license or other license, such as a professional license.
  • The interception of a tax refund.

In addition, a creditor can seek to avoid the stay by petitioning the court, but such a petition must meet certain criteria and follow correct procedures, meaning that creditors cannot simply continue calling you at home or the office with no restraint. The automatic stay generally remains in effect until your bankruptcy proceeding is completed.

Penalties for violating the stay

Best of all, creditors who willfully violate the provisions of the automatic stay can be subject to penalties, including the cost of any damages caused by the violation, attorneys’ fees for enforcing the stay, and even in extreme cases, “punitive damages”-that is, damages awarded with the intent of punishing the wrongdoer.

A fresh financial start

If you have reached your limit with creditor harassment and are ready for a fresh financial start, then bankruptcy may be the right answer for you. Seek the advice of an experienced bankruptcy attorney who can evaluate your situation and help you through the entire process.

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