Jump to Navigation

How bankruptcy can get creditors off your back

Many people in Eastern Tennessee have heard that a bankruptcy petition can prevent harassment by aggressive creditors, but very few understand how this happens. The answer is an automatic stay.

The automatic stay is found in the U.S. Bankruptcy Code at 11 U.S.C. ยง362. This section states that a bankruptcy petition automatically operates as a court order. The order states that all creditors shall immediately cease all attempts to collect debts owed to them by the debtor. The order specifically applies to lawsuits, attachment of wages and attempts to perfect or enforce any lien. Creditors who do not obey the order may face significant sanctions from the bankruptcy court. Because the order is automatic, creditors are immediately shut down in their efforts to collect debts.

The automatic stay also provides a temporary respite from a mortgage foreclosure. Mortgage debt does not go away in a Chapter 13 proceeding, but the mortgage holder must delay all collection activity until the bankruptcy proceeding is resolved. In many Chapter 13 proceedings, a more favorable repayment schedule may be negotiated, thus allowing the debtor to keep the family home.

Some debts, such as child and spousal support and past due taxes, are not affected by the automatic stay, and the debtor must continue to pay these obligations. Nevertheless, the temporary relief provided by the stay can provide enough breathing space for debtors to reorganize their finances and emerge from bankruptcy in a much better position.

An experienced bankruptcy attorney can provide helpful advice about the operation and reach of the automatic stay.

No Comments

Leave a comment
Comment Information

What's Your Situation:

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Subscribe to This Blog's Feed Visit Our Bankruptcy Website

Our Office Location:

Richard Banks & Associates

393 Broad Street, N.W.
Cleveland, TN 37364-1515
Map & Directions

Phone: (423) 244-0009
Toll Free: (866) 596-8527
Fax: (423) 478-1175

FindLaw Network

Privacy Policy | Business Development Solutions by FindLaw, part of Thomson Reuters.