Both Chapter 7 bankruptcy and Chapter 13 bankruptcy provide powerful tools for people who are overwhelmed by debt. However, neither type of bankruptcy is a magical solution that puts an instant end to a debtor’s financial problems. In a typical Chapter 7 bankruptcy case, it takes about 4 to 6 months to receive a discharge. A Chapter 13 case is built around a repayment plan that lasts from three to five years.
On first hearing, those time frames can be discouraging to people struggling with past-due bills. Many people don’t take the first steps toward bankruptcy until the situation is dire, meaning that they’re in need of immediate relief and often exhausted from the stress of juggling bills and staving off debt collectors. Some are facing the threat of imminent repossession or foreclosure, or their wages have been garnished, jeopardizing the ability to pay even essential living expenses. In other words, many bankruptcy petitioners need help right now.
Fortunately, filing for bankruptcy does provide most debtors with some quick relief, from the day the petition is filed.
How Bankruptcy Can Help: The Automatic Stay
In most Chapter 7 and Chapter 13 bankruptcy cases, an automatic stay is entered immediately upon filing of the petition. The automatic stay is a court order that stays (or puts on hold) any collector calls, wage garnishments, repossessions and other collection actions–including lawsuits and foreclosure actions.
Of course, the automatic stay doesn’t last forever. But, with limited exceptions, its protections remain in place until either the bankruptcy case is dismissed or the debtor is granted a discharge–long enough to prevent most creditors from pursuing any type of collection action while the bankruptcy case is pending.
Collection Action After the Automatic Stay is Entered
Ideally, once the automatic stay is entered, all creditors and debt collectors would immediately stop contacting the debtor and pursuing other collection actions. But, it doesn’t always happen that way.
Some creditor and debt collector actions after the automatic stay is entered are honest mistakes. This is particularly true right after the bankruptcy petition is filed and the stay is ordered, since it may take several days for the creditor or collection agency to receive notice of the court’s order. Even further along the process, a creditor may occasionally make a mistake, such as neglecting to remove the account from a call queue or passing an account to a debt collector during bankruptcy.
The debtor can typically resolve those situations by advising the collector that he or she has filed bankruptcy and that there is an automatic stay in effect. The creditor may ask for the bankruptcy case number, or may request contact information for the debtor’s attorney.
Unfortunately, not every collection attempt after entry of the automatic stay is an innocent mistake, and not all are resolved as quickly and easily as calling the creditor with a bankruptcy case number or emailing a copy of the automatic stay order. Some creditors are lack adequate processes for updating customer accounts when a bankruptcy case is filed, and so persist in collection action even after notice. A few even willfully ignore the automatic stay, selling past-due accounts to debt buyers after the stay is entered or attempting to pressure debtors into making payment in spite of the bankruptcy filing.
The good news is that the automatic stay is a court order, which means that creditors and debt collectors who ignore it are breaking the law. That provides consumers with powerful tools when a debt collector violates the stay.
Stopping Collection Action Directly
Many types of collection action require the cooperation of third parties, including courts. In those situations, the debtor can often put a quick stop to the action simply by providing a copy of the automatic stay order. For example, if a creditor files a lawsuit against a debtor who is protected by the automatic stay, submission of a copy of the stay order to the court will typically stop the proceedings. Similarly, if a creditor attempts to obtain a garnishment order or seizes assets to satisfy an existing judgment, the automatic stay can prevent those efforts from moving forward.
Of course, not all collection action involves courts and other outside parties. The automatic stay also puts a stop to the stress associated with constant collection calls, past due notices, and demands from collection agencies and attorneys.
Legal Enforcement of the Automatic Stay
When a phone call or submission of a copy of the automatic stay order doesn’t stop collection action, or a creditor or debt collector persists in calling, sending demand letters, or attempting to initiate other collection actions, the bankruptcy court can help. While the court usually won’t impose sanctions for an incidental violation, serious violations and ongoing patterns of ignoring the stay can result in serious consequences for the creditor and compensation for the debtor.
In one recent case, a debtor was awarded more than $60,000 after a creditor ignored the stay order and proceeded with a foreclosure sale: $45,500 from the mortgage holder and $15,000 from the creditor’s attorney.
Learn More about How the Automatic Stay Can Help You
If your financial problems have reached the crisis point and you are facing wage garnishment, foreclosure, automobile repossession or mortgage foreclosure, contact us to learn more about how the automatic stay can create immediate breathing room to pursue a Chapter 7 discharge or formulate a Chapter 13 plan without debt collector harassment, lawsuits, wage garnishments, and other risks to your property. The initial consultation is free.