For many individuals who decide to file for bankruptcy, the a major motivating factor is stopping incessant calls and letters from unpaid creditors. Being bombarded by creditors with demands for money someone does not have is an awful situation that leads to many sleepless nights and constant anxiety. The stress created by this situation becomes particularly acute if creditors start calling a person at work, which could jeopardize employment and make a bad financial situation much worse. Bankruptcy gives people with debt that is beyond their financial means an opportunity for a fresh start by eliminating or reducing amounts owed to creditors. Consumers with overwhelming amounts of debt that elect to file for bankruptcy need to know what creditors can and cannot do once a bankruptcy petition is filed. This information will allow them to better protect themselves from further harassment and understand a key component of this process. Creditors who ignore or violate these laws are subject to civil lawsuits, and in some cases, even criminal prosecution. A discussion of how the law regulates the actions of creditors during bankruptcy will follow below.

Automatic Stays

This aspect of bankruptcy is the one most people are familiar with because it automatically stops any lawsuits and most actions by creditors, collection agencies, or government entities against your property as soon as a bankruptcy petition is filed. The most notable thing it does is prohibit creditors listed in the bankruptcy petition from contacting you once they receive notice. In addition, this legal mechanism is especially important if you are facing things like foreclosure, wage garnishments, and eviction. Specifically, automatic stays can:

• Delay the ability of a utility company to disconnect services for 20 days;
• Halt foreclosure proceedings. Lien holders and banks will eventually reengage this process at some point unless the debtor agrees to some kind of repayment plan;
• Hold off eviction for several days or weeks. Note that automatic stays may or may not help this situation. If a landlord has a judgment allowing him/her to retake possession when bankruptcy is filed, the automatic stay will not stop the landlord from proceeding;
• Stop wage garnishments immediately and possibly even discharge them.

While the automatic stay is a powerful legal tool to limit actions by creditors, it will not affect any of the following:

• IRS proceedings, excluding liens and seizures of income or property;
• Lawsuits for child or spousal support or paternity actions;
• Criminal proceedings; and
• Repayment of loans to certain types of pensions.

This automatic stay on legal actions remains in effect until the bankruptcy case is dismissed or discharged.

Creditors Can Request Automatic Stays Be Lifted

Creditors can file a request with the bankruptcy court asking that the automatic stay be lifted as it applies to them. The court will lift it if the creditor can show the stay is not performing the intended purpose. This legal option is most important for foreclosure situations, because if the mortgage holder can show the debtor has no way to pay the amounts in arrears and the equity in the home is not adequate to cover the amount owed, the court is likely to agree to the request. Once the stay is lifted, the creditor has the right to pursue all legal options to get the money owed, meaning the debtor will almost certainly lose his or her home.

Talk to a Bankruptcy Attorney

The bankruptcy process is very complex, and it is easy to misunderstand things like when to send notices and deadlines for certain issues. If you are considering filing for bankruptcy, do not enter into it alone. Talk to a qualified bankruptcy attorney about which options are best for you. Christopher L. Arrington is a bankruptcy attorney who represents clients in the Indianapolis area. Contact him and start the process to get the relief you need.