When you file for bankruptcy, you likely face debts that far exceed your ability to pay them, and may have for some time. Maybe you have medical bills, car repairs, house repairs, or other unplanned major expenditures that make it difficult for you to keep up with your regular bills, like your car payment, utilities, credit cards, and your mortgage or rent. You’ve fallen behind on bills, and you alternate paying different bills each month, sometimes just enough to keep the water and electricity turned on. Maybe you’ve even fallen behind on your mortgage. You never answer your phone for numbers you don’t recognize out of fear it is another creditor calling to demand payment. You may receive notice loans in default or of lawsuits filed against you by creditors. You want to make it stop, but you don’t have the money to catch up, and you don’t know any other way to keep your creditors at bay.
Fortunately, bankruptcy can stop the seemingly endless calls and letters from creditors reminding you of your past due bills. This is because bankruptcy laws have a provision that stays (stops) all collection actions against you while you work out your financial problems through your case. This provides immediate relief from the stress of collections and legal actions against you.
What Does the Automatic Stay Do?
The bankruptcy laws in the U.S. contain a provision, commonly referred to as the “automatic stay,” that automatically stops almost all collection actions against a debtor as soon as the debtor files a petition for bankruptcy. The court orders creditors to cease pursuing the collection of debts, including any debts for which the creditor obtained a judgment prior to the debtor filing for bankruptcy. Creditors cannot repossess or foreclose on any of the debtor’s property, nor can creditors enforce a lien against a debtor’s property or a wage garnishment while the stay is in effect. If you rent your residence and are facing eviction when you file for bankruptcy, the stay can enable you to remain in your residence longer and could even provide you with a chance to catch up on your rent.
The bankruptcy process works to slow life down for a bit while debtors get their financial affairs in order. The bankruptcy court helps determine how much, if any, of outstanding debts a debtor can realistically be expected to pay given the debtor’s income and other assets. Outside of bankruptcy, creditors hold all the cards, but bankruptcy is designed to determine what you actually can pay, and what debts should be canceled or discharged. The automatic stay is intended to give the debtor breathing room and the court the time it needs to make those determinations.
Under the automatic stay, creditors are prevented from starting new collection actions and from continuing to pursue existing collection actions, whether those actions are private or through the courts. Otherwise, the bankruptcy court would be unable to administer cases before it. In addition to putting a stop to any pending court actions and preventing the filing of new court actions to collect debts, the automatic stay requires that creditors stop calling the debtor in attempts to collect amounts owed. Demand letters also have to stop. Collection firms have to quit contacting the debtor, as well. Foreclosure actions and repossessions also are halted by the automatic stay. The stay is intended to freeze things in place while the court evaluates the debtor’s situation and generally remains in place until the resolution of a bankruptcy case.
How Do I Invoke the Bankruptcy Stay?
No separate action is necessary to put the automatic stay into effect. Simply filing for bankruptcy invokes the stay, halting any further collection actions against the debtor automatically. Because your bankruptcy filing includes a list all of your creditors, they all get a notice from the court that you have filed for bankruptcy. This notice informs them of the automatic stay and that they should stop any further actions to collect debts. None of this requires any action by you beyond filing for bankruptcy. If creditors continue collection efforts without first obtaining special permission from the bankruptcy court, they can face court sanctions.
WONDERING WHAT HAPPENS WHEN YOU FILE BANKRUPTCY IN MINNESOTA?
If you are considering filing for bankruptcy in Minnesota, you need to understand how the bankruptcy laws can work for you. Understanding each step of the process, including the automatic stay, can help you decide whether bankruptcy is right for you and how bankruptcy can help your specific situation. For a free case evaluation to determine how bankruptcy can help you, contact the Minnesota bankruptcy attorneys of Kain & Scott at 800-551-3292 or through our online contact form. We are also available to meet over FaceTime and Skype if you cannot make it into the office.
