Does Filing Bankruptcy Stop Debt Collection Automatically?

Bankruptcy’s Automatic Stay is an extremely powerful tool that protects you from debt collection during a case, though you can lose that protection under certain circumstances. But first, what is the automatic stay and how do you get it?

Stop Debt CollectionStop Debt Collection

You get a stay automatically from the Court at the time a case is filed [bankruptcy laws are full of exceptions, so always contact a lawyer to learn how bankruptcy would affect you]. That stay stops most debt collection activity, such as lawsuits, foreclosure, garnishment, collection letters, and collection phone calls, and generally prevents many types of bad debt collection stuff from happening to you.

If your creditor does not like the way it is treated in bankruptcy it can ask the Judge for relief from the stay. Words have special meaning in the bankruptcy context. Let me explain some of them in simpler terms. Relief from the stay means they stay no longer stops the creditor from trying to collect money or property from you.

Your creditor has to prove in a court trial that it is entitled to relief from the stay, and you are given notice of that trial date and a chance to defend yourself. Only certain types of creditors can win these trials.

The automatic stay law, 11 U.S.C. 362, allows a creditor, with an interest in some property, to protect that interest in that property if that creditor is not adequately protected by the bankruptcy. Adequate protection is another one of those bankruptcy phrases that have a special meaning. It means the bankruptcy must provide a way for that creditor to receive at least the present value of its interest in your belongings or some payment to prevent its interest from losing value during the bankruptcy case. Some examples of creditors with interests to be protected include lenders who have a lien on your car or a mortgage on your house. If your bankruptcy does not offer them something, then they can ask the Judge for permission to proceed to collect their debt against you or to take your belongings.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg, and the Tampa Bay area.

If you would like more information on our practice, please consult our website at www.bankruptcyfortampa.com or call 727-254-1704.