People primarily seek bankruptcy for two reasons – to get rid of debt they have no realistic way of paying back, and to stop harassing calls and letters from creditors. While overwhelming debt has obvious financial consequences, it also causes a large amount of emotional distress that is compounded by constant requests from creditors for money they do not have. For those mainly dealing with consumer debt, i.e., credit cards, medical bills, payday loans, etc., Chapter 7 bankruptcy is the process people generally choose because it allows them to discharge, or wipe out, most of the money owed. In addition to the financial relief this discharge provides, the process also bars creditors from contacting or taking any legal action to enforce a debt, at least temporarily, or until the bankruptcy case is concluded. This measure is called the automatic stay, and courts require strict compliance with this rule. A Florida court recently held a property company in contempt for filing eviction proceedings despite having knowledge of the tenant’s pending bankruptcy petition. A discussion on when the automatic stay is effective, and when creditors may seek removal or lawfully ignore it, will follow below.

When Automatic Stay is in Effect

As soon as a person files for bankruptcy, the automatic stay goes into effect without any additional action by the debtor. The automatic stay stops any lawsuit and most actions against property by creditors, government entities, and collection agencies. Those facing foreclosure, eviction, or loss of utility connections are most benefited by this measure, but it also generally forces creditors to stop calling, sending letters, or garnishing wages. The amount of time the automatic stay is valid is typically until the discharge is granted, but certain actions against a debtor’s property can be permitted to proceed before discharge, particularly home foreclosures. Furthermore, once the debt is discharged, the creditor is forever prohibited from seeking to collect on these debts. If the debt survived bankruptcy, though, the creditor is permitted to restart collection activity at this point. Actions against the debtor’s property, particularly foreclosures, while delayed for a period of time, will likely be permitted to resume before the bankruptcy discharge is issued.

Creditor Options to Avoid

While the automatic stay will halt the vast majority of actions to collect, creditors are permitted to ask the court to lift the stay. The creditor will need a good reason before a court will consider granting the request, but secured creditors, i.e., those with collateral to repossess, are entitled to a return of the property or payment, regardless of the bankruptcy. Thus, these stays are likely to be lifted unless the debtor can become current on the payments or negotiate a new plan with the lender. Unsecured creditors with debts likely to survive bankruptcy, such as child support obligations or spousal support, are also often able to convince a judge to lift the automatic stay. However, note that debtors do have the right to contest these requests, but will need to produce evidence of some ability to pay to get the court’s attention.

Finally, utility disconnection is another area with different rules about how long a utility company must refrain from action while a customer is in bankruptcy. Utility companies are barred from altering, refusing, or discontinuing service during the first 20 days of a bankruptcy petition. However, during that same period, the debtor must produce sufficient assurances of payment, or the company can terminate services. Determining if bankruptcy is most effective way to obtain debt relief, and the appropriate type, are all key questions best addressed by an experienced bankruptcy attorney. The type of debt a person has really drives which options are most beneficial.

Get Help

Filing for bankruptcy is a big decision, and should only occur after speaking with an experienced bankruptcy attorney about your legal options. Christopher L. Arrington, P.C. understands the stress of overwhelming debt, and will work to get you fullest amount of debt relief available. Contact the Danville law firm to schedule an appointment.