When a person files for Chapter 7 or Chapter 13 bankruptcy, the courts enact a court injunction known as an “automatic stay” which protects them against creditor communication and collection efforts. An automatic stay can provide much-needed breathing room for debtors to collect themselves and reorganize their finances.
An automatic stay can protect debtors against the following:
1. Loss of utilities: If a person is behind on their water, gas, electric, or phone bill, an automatic stay can postpone their utility disconnection for at least 20 days.
2. Evictions: An automatic stay can put a hold on eviction proceedings unless the landlord already has a judgment of possession against the property. An automatic stay can also be overridden in the event that the landlord alleges the tenant has been endangering the property or has been using the premises to use illicit drugs.
3. Foreclosures: An automatic stay can temporarily stop bank foreclosures. Foreclosures may still proceed if the debtor filed for Chapter 7 bankruptcy, as their non-exempt liquid assets will need to be sold to satisfy their debts. Chapter 13 bankruptcy will oftentimes be the best remedy to help a person keep their home.
4. Collecting overpaid benefits: If an individual is overpaid public benefits, an automatic stay can protect them from the agency collecting this overpayment out of their future benefit checks. The agency may still terminate or deny a person’s benefits if they should become ineligible.
An automatic stay is not absolute, as there are still certain collection efforts that cannot be prevented. Audits or contact from the IRS over unpaid debts may not be stopped through an automatic stay, though wage garnishments and tax liens will be halted. Unpaid support obligations are also unaffected. Individuals who face criminal prosecution related to their debts, such as those accused of fraud, will not be spared from criminal proceedings through automatic stay.
Creditors can sometimes get around an automatic stay by petitioning with the bankruptcy court to lift the injunction if it is jeopardizing the creditor’s interest in certain property or it is not serving its intended purpose. For example, if a person were to file for Chapter 13 bankruptcy the day before their house was scheduled to be sold in foreclosure and they have no feasible means of paying their debts, the courts may exempt the bank from the automatic stay.
If you are struggling under the weight of outstanding debt, the Fort Worth bankruptcy lawyers at The Pritchard Law Firm can walk you through the process of filing for bankruptcy and get you on the road towards a debt-free future. Having earned a 2016 Avo Clients’ Choice Award and numerous positive testimonials from past clients, we can provide the unshakable support you need to help you get through this difficult time as smoothly as possible.
Schedule a free case review today to get started towards a clean financial slate.