Sometimes, consumers in Michigan have no choice but to file bankruptcy to help ease their debt load. Many filers opt for Chapter 7, which removes debt by selling assets, or they choose Chapter 13, which establishes a debt repayment plan. While bankruptcy is often viewed negatively, it has one major advantage called the automatic stay.
How the automatic stay works
The automatic stay is a special provision that activates once the debtor files for bankruptcy to stop creditors. Creditors must halt wage garnishments, foreclosures, and other collection actions, at least until the case is discharged. Two benefits of the automatic stay are that it makes the case fair and that consumers may sue creditors who violate it.
While debtors cannot file solely to stop utility shutoffs, it gives them time to pay past-due bills if they file. Not all debts or actions can get halted by the automatic stay, however, such as tax collection actions or criminal fines.
When a creditor can lift the automatic stay
A creditor often petitions the court to remove the stay in Chapter 7 bankruptcy when a debtor falls behind on payments. If the property has enough equity to pay the debt, the court won’t likely grant the exception. The lender may ask for a lift if court proceedings are already filed, such as eviction of a destructive tenant.
The debtor should receive a notice of the motion requiring them to attend a hearing once they respond. If a debtor doesn’t respond to the notice, the court will proceed with the motion to lift.
Bankruptcy doesn’t remove all debts, but it can make paying the remaining debts easier. Since bankruptcy impacts credit scores, a consumer should learn all about bankruptcy before making the decision to file.