Filing for bankruptcy can offer a temporary respite from collection efforts even if you let your bankruptcy case get dismissed at some point later on.
As soon as you file your bankruptcy petition, the automatic stay goes into effect. An automatic stay is an injunction that takes effect as soon as the case is filed with the court. You do not need to file any additional documents or appear for a hearing; once you submit your petition, your creditors must cease almost all collection efforts.
Once a stay has been issued, creditors may not contact the debtor, demand repayment, file a lawsuit or attempt to seize the debtor’s property. The only option a creditor has is to file a motion for relief and argue at a hearing why the automatic stay should not apply. A common reason for a motion for relief is when a debtor wishes to keep his residence but fails to make ongoing mortgage payments.
Once the bankruptcy case is filed, the court will notify your creditors. Debt collectors who knowingly violate a stay can be sanctions after your bankruptcy attorney files a motion with the court. In almost all cases violation of the automatic stay results because of lack of notice. As soon as you creditor has notice of the bankruptcy, he normally will stop any collection efforts to avoids being sanctioned by the court. If the creditor was unaware of the stay, however, the court will not impose any sanctions. Regardless of notice, though, your creditors must return any property they seized after you filed your petition. That is also try for property that has been repossessed before filing of the bankruptcy, such as a repossession of your vehicle. After filing of a chapter 13 bankruptcy case, the creditor will have to return the vehicle back to you.
Stays do not stop collection efforts on certain types of debt, including:
- Criminal sanctions – Criminal defendants are often ordered to pay the costs of their prosecution, fines and restitution. Automatic stays do not interrupt payment of these obligations.
- Child and spousal support – If you are in arrears on a support order, you may still be subject to contempt proceedings and wage attachments .
- Tax audits – While the tax authorities must wait to collect, an automatic stay does not protect you from being audited.
Automatic stays protect both you and your creditors. Imagine that a young man graduates from college and immediately falls into default on a number of credit card accounts. Aware of his rights, he contacts an attorney and files for bankruptcy. Without an automatic stay, a debt collection firm could persuade the young man to settle one of his debts by emptying his savings account. This would leave the other credit card companies penniless. With an automatic stay, however, all of the young man’s creditors must be treated equally. In a chapter 13 bankruptcy case available money will be distributed according to a plan the debtor proposes.
The automatic stay is in place as long as your bankruptcy case is ongoing. If your case is dismissed, your creditors can resume their collection efforts. If you need to refile your bankruptcy case, the automatic stay is in place for only 30 days if the previous case was dismissed within the last year. Your bankruptcy attorney will then need to file a motion to extend the automatic stay.