People who are facing debts that seem insurmountable often look for ways that they can reduce those debts. Once it becomes evident that their options are limited, some people may decide to explore the possibility of filing for bankruptcy.
Filing for bankruptcy provides a legal way to regain control of your finances. This is a highly regulated process, but it comes with specific benefits for you. One of these is that the court will issue an automatic stay once the bankruptcy petition is filed.
What is the automatic stay?
The automatic stay is a court order the direct creditors that are part of the bankruptcy to stop all collection activities. This means that you won’t be contacted by them in any manner, including mail, phone calls, text messages, email and in-person visits. Having that break from collection efforts can help to give you time to determine how to reset your finances and figure out how you are going to rebuild your creditworthiness after the bankruptcy is complete.
There’s also a benefit to the court and to other creditors. Most creditors won’t receive the full balance they’re due during the bankruptcy. By taking away the ability to try to collect outside of the bankruptcy process, the court can ensure that all creditors will receive only what they’re due and not have one getting something extra outside of the court system at the expense of the others.
Does the automatic stay always apply?
There are times when the automatic stay won’t apply. If a person has filed for bankruptcy recently or if there is a sign of fraud, a creditor may opt to petition the court to withdraw the automatic stay. This would mean that they are allowed to pursue collection attempts outside of bankruptcy, which could open you up to foreclosure of a home or repossession of a secured asset.
Filing bankruptcy can be a valuable financial tool, but it is one that you should handle carefully. Because these cases can be so complex, it may be beneficial to work with someone who can assist with learning the options, as well as what rights and responsibilities you have during the process.