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Bankruptcy May Be Your Option

How does the automatic stay in bankruptcy work?

One of the reasons why people consider bankruptcy as an option for debt relief is because their creditors have already turned over their accounts to one or more debt collection agencies, which then begin calling relentlessly.

Although there are federal and state laws meant to prevent some of the more abusive behaviors that such debt collectors frequently engage in, dealing with them can still be intimidating and unpleasant.

A key characteristic of bankruptcy law is its application of what is known as the "automatic stay." Once you file a petition for bankruptcy, the automatic stay generally works to suspend actions that some of your creditors, their debt collectors or in some cases even the government may be taking against you. The automatic stay is particularly useful if your financial situation has become so dire that you are encountering any of the following:

  • wage garnishment;
  • home foreclosure;
  • eviction from a rental property; or
  • having your utilities disconnected.

The automatic stay does not by itself act to discharge any debts you may owe. Rather, it serves to suspend actions being taken against you pending the resolution of your bankruptcy petition.

It should be noted, though, that there are some limitations on what the automatic stay can do for you. First, there are some types of financial obligations that it will typically not work against. These include certain actions against you by the IRS, such as audits for the issuance of tax deficiency claims against you. Child support actions against you are also not necessarily suspended by the automatic stay.

Lastly, you should remember that your creditors may only be temporarily deterred by an automatic stay. They can request the bankruptcy court to remove the stay, based on the argument that the reason for applying the stay does not apply to them.

The automatic stay can be one of the most helpful aspects of filing for bankruptcy. But it can be a complex part of a bankruptcy proceeding. It is best addressed with the assistance of a bankruptcy attorney. This post should not be taken as a substitute for legal advice in connection with the automatic stay or any other aspect of bankruptcy law.

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