When an individual file for bankruptcy, an automatic stay is automatically put into effect. With the help of the stay, the debtor is no longer harassed by the creditors in terms of wage garnishment or collection calls. However, this is only temporary and can be pleaded by the creditors to be lifted as well.
The function and working of an automatic stay
An automatic stay is recognized under section 362 of the United States Bankruptcy Code. The filer does not need to apply for this separately. When they file for bankruptcy, it gets into effect automatically. An automatic stay applies to both individuals as well as businesses and is put into effect when filing for any chapter.
It is important to note that there are certain exceptions to whom the automatic stay does not apply – non-debtors, guarantors, co-defendants, corporate officers, and affiliates.
An automatic stay prevents the following-
- Collections call from creditors
- Foreclosure of property
- Wage garnishment
- Enforce a lien
- Repossess collateral
If any creditors try to harass the debtor after an automatic stay is put into effect, the debtor can sue them for the same.
The objective of an Automatic stay
The main reason why an automatic stay is implemented is that once an individual files for bankruptcy, the creditors are unlikely to receive the complete amount that they lent. Mostly, a proportion amount of the actual amount owed is only paid back. Therefore to prevent any individual creditor from trying to take their due, and to bring all creditors on the same level, this is implemented.
Exemptions of Automatic stay
Though creditors cannot claim any payment during the automatic stay, certain debts have to be paid in full and are not exempted even while the automatic stay is in effect. They include –
- Domestic support obligation– alimony, child support
- Student loan
- Money owed due to criminal proceeding
Until when is the automatic stay going to be in effect?
An automatic stay will be in effect until the bankruptcy proceeding continues. Once either the case is dismissed or discharged, the automatic stay will cease to be in effect.
If you are planning to file for bankruptcy and are going through some doubts, you can always book a consultation with the professionals to get all your doubts cleared. To book an appointment, log on to – https://www.recoverylawgroup.com/bankruptcy/ or call 888-297-6203.