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Understanding the benefits and limits of the automatic stay

One of the most powerful provisions of the United States Bankruptcy Code is the automatic stay -- the provision that prevents creditors from attempting to collect a debt from the debtor. For anyone in Tennessee who files a bankruptcy petition, the automatic stay will bring most collection actions to an immediate stop. However, not every action against the debtor will be stopped. As such, for anyone contemplating bankruptcy, the power and limits of the automatic stay should be completely understood.

Many people understand that the automatic stay can halt a judicial proceeding, but a common misperception is that the stay applies only to lawsuits. The actual reach of the stay is much broader.

The automatic stay prohibits "any act" to obtain the debtor's property, create or enforce a lien against the debtor's property and most importantly, "to collect assess, or recover a claim against the debtor." The phrase "any act" applies to all collection efforts, including telephone calls and written communications.

Thus, the automatic stay is intended to stop ALL collection efforts, and it applies to the often harassing techniques employed by professional debt collectors. Generally, the automatic stay bars all collection activity, except those debts that are specifically exempted from the effect of the stay.

The most common debts that are exempt from the automatic stay involve criminal proceedings against the debtor or family law matters. Actions to establish paternity, to modify an order for domestic support, that concern child custody and visitation, that seek the dissolution of a marriage or regard an issue of domestic violence are not affected by the stay. The code provision that defines the effect and scope of the automatic stay also sets out many other exemptions that do not apply to the great majority of personal bankruptcy filings.

Anyone contemplating filing a bankruptcy petition may wish to seek the advice of an experienced bankruptcy attorney on how the automatic stay will affect his or her individual situation.

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