Bankruptcy has a number of benefits for debtors who are struggling to keep up with their financial obligations. The biggest advantage is perhaps the most well-known—debtors receive debtor forgiveness for nearly all of their debts at the end of the bankruptcy process. However, bankruptcy offers another very significant benefit: the automatic stay.
What is the Automatic Stay?
By the time many debtors file bankruptcy, they are being hounded by creditors. They may receive borderline harassing phone calls, frightening letters, or they may have been hauled into court as an attempt to collect on outstanding debts.
Bankruptcy stops all collection efforts. If a creditor does not stop the phone calls, letters, or garnishments immediately, they can face sanctions from the bankruptcy court. Your bankruptcy “stays” or pauses all collection efforts and legal actions, including most foreclosure proceedings. The stay is an automatic benefit that starts the moment that your bankruptcy petition is filed.
The timing of your bankruptcy filing is particularly crucial because of the automatic stay. For example, if you are facing foreclosure of your home, you need to speak with a Salt Lake City bankruptcy attorney immediately to get the protection of the automatic stay.
Why Do Debtors Get the Automatic Stay?
Debtors get the benefit of the automatic stay because it puts all creditors in the same position when you file bankruptcy. Fair treatment of creditors is a vital aspect of bankruptcy, and the automatic stay helps accomplish that goal. When bankruptcy begins, creditors can no longer fight to be first in line for money; the bankruptcy code sets out precise guidelines as to who should get paid first and how much.
In the case of Chapter 13 bankruptcy, the stay forces creditors to work with you to create a repayment plan that addresses debts in accordance with the requirements of the bankruptcy code.
Exceptions to the Automatic Stay
While the automatic stay is broad, it does not cover every action against a debtor. For example, it generally will not affect:
- Actions to establish child support, custody, or visitation
- Certain tax proceedings (such as audits and deficiency notices)
- Paternity Actions
- Criminal prosecutions and investigations
- Actions related to alimony or spousal maintenance
- The perfection of certain types of liens (such as mechanic’s liens)
- Actions to exclude someone from Medicare or a different kind of federal health plan
Divorce proceedings are tricky. They can continue as to the divorce itself. However, if the separation involves a property settlement, that must wait until after the bankruptcy has concluded. Aspects of the divorce that do not affect property or assets can often continue. In some circumstances, the parties may agree to ask the court to pause the entire proceeding so that everything can be addressed at one time after the bankruptcy is over.
If you are considering bankruptcy, and you may need to act quickly to protect your rights, you need to speak with a Salt Lake City bankruptcy attorney. Do not wait until the last moment—and do not wait until it is too late! Call Justin M. Myers today.
