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What is the “Automatic Stay” in Bankruptcy and How Does it Work?

Are you being harassed by debt collectors? Sued by creditors? Having your wages garnished? If so, filing for bankruptcy can stop all of these things through what is known as the “automatic stay.” The automatic stay temporarily stops all adverse creditor actions against you. If you are being harassed by debt collectors, the debt collectors must stop calling you. If you are being sued by creditors, then their lawsuit gets placed on hold. If you are having your wages garnished, then the wage garnishments must stop until the bankruptcy is completed. Once the bankruptcy is completed, you will no longer owe the debt. Indiana bankruptcy attorney Chris Arrington will discuss the automatic stay, how it works, and what it can do for you.

How Does the Automatic Stay Work?

Automatic stays, defined by Section 362 of the U.S. Bankruptcy Code, go into effect as soon as an individual or business files for bankruptcy. This includes Chapter 7 and Chapter 13 bankruptcies. This gives you an opportunity to gain a little breathing room from creditor harassment and lawsuits. It will give you an opportunity to work out your finances before a creditor can sue you and gain a judgment against you. It can also prevent the foreclosure of your home, the repossession of your vehicle, or any number of other creditor actions against you.

Once a creditor has a judgment against you, they place a lien on your home, garnish your wages, or levy your bank account. You can stop them from doing this by filing for bankruptcy before they win their lawsuit and gain a judgment. To win the lawsuit, all they need to do is prove that you owe the debt. So, in most cases, they can easily win. 

What Can an Automatic Stay Prevent?

Aside from creditor lawsuits, an automatic stay prevents a creditor from taking numerous adverse actions against a debtor. These include:

  • Foreclosure – An automatic stay will place foreclosure procedures on hold until your bankruptcy is finalized. As long as the bankruptcy case remains open, a mortgage lender may not foreclose on a home.
  • Eviction – An automatic stay can stop an eviction, but only for a short period of time. A landlord may request that the stay be lifted during the bankruptcy proceedings if it’s apparent that you cannot afford your rent. However, the landlord must request that the automatic stay be lifted so it shifts the ball into their court in the meantime.
  • Utility disconnections – The automatic stay can prevent your utilities from being shut off for 20 days. It will not, however, erase the amount of money you owe in unpaid utility bills.
  • Collection of overpaid public benefits – If Uncle Sam is saying you owe money in overpaid public benefits such as Medicare, unemployment, SNAP, or whatever else, the automatic stay will prevent them from garnishing your wages. However, it will not stop the agency from withholding benefits from you. 
  • Wage garnishment – The automatic stay will stop your wages from being garnished. If the debt that caused the wage garnishment is discharged in bankruptcy, it will permanently stop the wage garnishment. 

Talk to an Indiana Bankruptcy Attorney Today

Chris Arrington represents the interests of Indiana debtors who can no longer make payments on their debts. Call today to schedule an appointment, and we can begin discussing your best moves right away. 


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