When a person files for bankruptcy, the court issues an automatic stay. This gives the filer a reprieve from the constant communication from debt collectors. Once the automatic stay is issued, creditors can’t make any collection attempts, including making demands through the mail, over the phone, in person or any other methods.
While the automatic stay makes life much easier for the person who files bankruptcy, it serves another purpose. Since creditors aren’t likely going to get the full balance they’re owed, the automatic stay prevents them from trying to go around the bankruptcy process to collect more than they’re supposed to receive.
Limitations to the automatic stay
The automatic stay can be lifted in certain cases, such as if the person has previously had bankruptcy discharged. It may also be lifted if there’s a chance that collateral may decrease in value to the point that it wouldn’t adequately secure the debt.
Another limitation is that the automatic stay only applies to the person who filed for bankruptcy. Joint account holders and co-signers aren’t provided with the same protections as the filer. The creditors can still attempt to collect the balance of the debt from the parties who aren’t named on the bankruptcy filing.
The automatic stay is an important component of bankruptcy, but it’s not the only reason for a person to file. Anyone who’s considering this option should ensure they understand the responsibilities that come with filing. They should also explore Chapter 7 and Chapter 13 bankruptcy to determine which option is the most suitable for their circumstances.
