When a person files bankruptcy, they have to submit a form that contains all of their creditors. They can’t pick and choose who to include on that list. Once they have done this, the creditors will have to wait for the bankruptcy trustee to determine what, if any, payment they’ll receive.
Because it’s highly likely that creditors won’t receive full payment for the balances, the court has to prevent them from trying to circumvent the bankruptcy process to collect on accounts. This is done by the court issuing an automatic stay, which halts all collection activities against the filer. Creditors can’t use any methods, including mailed demands and phone calls, to try to collect on the debt, so filers have a break from those stressful encounters.
What does the automatic stay cover?
The stay halts a broad range of actions, including utility shut-offs, car repossessions, some eviction proceedings and debt-related court judgments. It even pauses IRS efforts to collect most back taxes, although it won’t erase tax debt altogether.
However, there are exceptions. For example, criminal proceedings, child support actions or debts related to domestic support obligations typically continue despite the stay. And if you file for bankruptcy more than once in a short time, the stay might be limited or not go into effect at all.
Creditors can’t violate the automatic stay without facing serious penalties. It’s critical to understand all rights related to the automatic stay and the responsibilities filers have in the bankruptcy. Working with someone familiar with these matters may be beneficial since they can explain everything to the filer.