When you’re dealing with impatient creditors or facing repossession of your home, car or other valuable property, bankruptcy can provide you with much-needed financial relief and a chance to start
So how can bankruptcy protect you from some undesirable financial scenarios? That’s where the automatic stay can come into play.
What is an automatic stay?
An automatic stay is an injunction that goes into effect when you file for bankruptcy. It can prevent creditors from pursuing debt collection efforts against you.
How long an automatic stay can last typically depends on the type of bankruptcy you pursue. For example, if you file for Chapter 7 bankruptcy, an automatic stay may only last a few months. However, if you file for Chapter 13 bankruptcy, an automatic may last anywhere from 3 years to 5 years.
Additionally, if you had another bankruptcy case dismissed in the past year, your automatic stay may only last for 30 days.
What can happen once my automatic stay gets lifted?
When courts lift your automatic stay, the protections that come with them can go away. That means creditors can typically resume collection efforts.
In some cases, creditors can even request to remove an automatic stay before your bankruptcy case closes. But to do so, they must typically prove that the automatic stay is negatively impacting their business.
Which of my debts can benefit from an automatic stay?
Here are a few types of debt an automatic stay can help you with:
- Utility bills: Whether you’re behind on gas, electric, trash, recycling or internet, automatic stays can usually stop companies from shutting off your utilities for at least 20 days.
- Home foreclosure: An automatic stay can stop home foreclosures. This can allow you to keep your home as long as your bankruptcy case remains open.
- Government benefits: If you were overpaid for unemployment, SNAP or even Medicare benefits, an automatic stay can usually stop collection efforts by related government agencies requesting repayments.
Additionally, if you’re in the latter stages of the debt collection process, creditors may be pulling your payments directly out of your paycheck. An automatic stay can typically stop wage garnishments by creditors. And, depending on the type of debt you have, it could potentially get discharged in bankruptcy.
You can have a chance to start over
Bankruptcy can give you a chance to reset your finances. And the automatic stay can play a critical role in that reset, giving you time to breathe. You can use that time to pave your path out of debt and into financial freedom.