For people in eastern Tennessee, the filing of a bankruptcy petition under either Chapter 7 or Chapter 13 can feel like the first step on a long, dark and unpredictable journey. In reality, the decision to seek relief from debt via a bankruptcy proceeding will produce several immediate benefits. One of the most important is the automatic order for relief and the automatic stay.
The order for relief is issued automatically by the bankruptcy court in which the petition is filed. The order contains a very important provision - the stay of all collection activities by every creditor of the debtor. The stay orders every creditor to immediately cease collection activity against the debtor. The stay affects lawsuits, all debts incurred before the petition was filed, and all proceedings to collect on existing judgments. The stay can prevent utilities from being disconnected, halt eviction proceedings, prevent credit card companies from pursuing collection and stop garnishment proceedings. Perhaps the most important benefit is the immediate halting of foreclosure proceedings involving the family home. Penalties for violating the stay are severe, but the law also gives the creditors an opportunity to seek relief from the stay for certain prescribed reasons.
Perhaps the most important benefit conferred on the debtor by the automatic stay is the cessation of any and all attempts to foreclose a mortgage on the debtor's homestead. The stay provides only temporary relief; once the bankruptcy proceeding is completed and the court issues its order for discharge, the foreclosure proceeding can move forward. If the debtor is intent on keeping a residence out of the clutches of a foreclosing lender, Chapter 13 may provide more lasting relief than a Chapter 7 filing. Under Chapter 13, the debtor has an opportunity to negotiate with the lender during the bankruptcy proceeding about repaying delinquent installments and continuing to make future payments.
Anyone wondering about commencing bankruptcy proceedings may wish to consult an experienced bankruptcy lawyer about how the automatic stay can provide immediate relief from debt collectors.