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How can I benefit from an automatic stay?

On Behalf of | Oct 13, 2020 | Firm News

Some people fear filing for bankruptcy, believing it will cast a stigma that will be hard to recover from. In reality, many people have successfully used bankruptcy to get out from under burdensome debt and return to fiscal solvency. One of the valuable tools bankruptcy offers is an automatic stay.

People who have a lot of debt generally face collection efforts from creditors. Collection efforts like phone calls and letters requesting payment often produce a lot of stress and make life miserable for people who cannot pay off their debts. By filing for bankruptcy, you have a way to stop creditors from harassing you any further.

How an automatic stay works

According to Forbes, when you file a petition for bankruptcy, the court imposes an automatic stay which takes effect on the date you filed your petition. This means that creditors cannot make efforts to collect on your outstanding debts and that all collection lawsuits must stop. Creditors cannot send letters to you or contact you over the phone to ask for payments. The automatic stay will remain in place for the duration of your bankruptcy case.

Challenges to an automatic stay

There is no guarantee that an automatic stay may hold up. Creditors may request the court to grant a relief from the stay, allowing them to resume collection efforts against you. However, courts tend to reserve relief only for secured creditors like banks which have made loans backed by collateral. An unsecured creditor like a credit card company is unlikely to overturn an automatic stay.

Generally, secured creditors must show that a debtor owes them more than the worth of the collateral and that the bankruptcy filer does not have a good chance to reorganize. However, bankruptcy courts usually will grant a debtor time to produce a viable plan of reorganization. For these reasons, you might avoid collection efforts long enough to produce a workable plan to exit bankruptcy.