How filing a bankruptcy petition can ward off creditors

One of the most bothersome aspects of financial difficulty for residents of Monroe County is the repeated efforts by creditors to collect what they are owed. Telephone calls, letters and occasionally other methods are used by creditors to force debtors to pay off their debts. In many cases, the debtor lacks the financial resources to pay what is owed, and the resulting sense of frustration and panic can become overwhelming. Bankruptcy offers a solution that is effective, even if it is not permanent. The solution is called the “automatic stay.”

How the automatic stay works

A stay is lawyer-talk for a court order that prevents parties from taking certain actions. Generally, a party who violates a stay order can face severe sanctions from the court.

In a chapter 7 or chapter 11 proceeding, the filing of a petition acts as an order to all creditors of the debtor who files the petition to cease any and all effort to collect debts that were owed as of the date the petition was filed. The debtor must file a list of all debts that are owed as of the date of the filing of the petition. Court personnel then use this list to provide notice of the entry of the stay to all creditors. The stay remains in effect until the bankruptcy proceeding ends.

Not all debts are covered by the automatic stay. Child custody payments are not stopped by the stay, and actions to determine paternity are likewise not halted by the automatic stay. Most tax obligations and actions to determine liability for a tax obligation are also beyond the reach of the automatic stay.

The benefit of the automatic stay

The automatic stay does not permanently erase liability for a debt, but it has one big advantage. It gives the debtor time to negotiate a settlement with one or more creditors. In a Chapter13 proceeding, the debtor can request an extension or a reduction in regular payments. In a Chapter 7 proceeding, the automatic stay gives the debtor leverage to negotiate a reduction in the principal amount of the debt.

Anyone who is in financial difficulty may wish to review the advantages of the automatic stay with an experienced bankruptcy attorney. A knowledgeable lawyer can review the debtor’s financial situation and provide an evaluation of how the automatic stay may help.

 

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