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What is an automatic stay in bankruptcy and how does it help?

Individuals who are deep in debt might get tired of the constant collection attempts they face for past due bills. These creditors are sometimes so persistent that the methods they use border on harassment. When this happens, getting those efforts to stop might become a priority. Fortunately, there is an option that you have to make this happen.

When you file for bankruptcy, the court issues an automatic stay. This prevents the creditors who are part of the filing from being able to contact you to get money. You won't have to worry about the phone calls, letters or emails that have become part of your daily life.

What constitutes a collection attempt?

While you might be more worried about the phone calls than other types of collection attempts, the automatic stay stops a host of other types of collection attempts. The creditors won't be able to place liens on your property, and they can't take legal action like filing for a foreclosure. When any collection attempts are made, you can take legal action against the creditor.

Why is the automatic stay important?

Bankruptcy doesn't allow for consumers to pick and choose what debts get paid. There is a chance that a creditor could try to rush to collect on an account that is going into bankruptcy. The automatic stays prevents them from doing this, which puts all the creditors in the same position.

The bankruptcy laws prioritize categories for debts. Some creditors won't receive the full amount of money owed to them so they will have to forgive part of the balance when the bankruptcy is complete. It wouldn't be fair for one creditor in a category to receive more than its fair share of the available repayment, so the automatic stay keeps things on an even keel.

Can the automatic stay be lifted?

Creditors can petition the court to lift the automatic stay if they have a valid reason. An example is if the balance due was the result of fraud. In that case, the court might allow the creditor to pursue repayment from the individual outside of the bankruptcy court.

Knowing your rights and responsibilities when you are filing for bankruptcy is a priority. This ensures that you understand what is happening so that you can do what's necessary to get the case resolved. Once the bankruptcy is completed and your debts are discharged, you will be well on your way toward financial freedom.

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