One of the most difficult aspects of owing debts that you cannot pay is dealing with your creditors, or the collection agencies that work for those creditors. Bill collectors often seem to stop at nothing to collect money from you, even if it means threatening you or not being truthful about the consequences of not paying off your debt. As a result, people in this situation often turn to bankruptcy proceedings to not only deal with their debts, but also to deal with their creditors.

Filing bankruptcy sets into motion some protection for you from your creditors, in what is commonly known as the “automatic stay.” This mechanism can prevent creditors from taking certain actions against you regarding the debts that you owe. The automatic stay doesn’t permanently prevent your creditors from attempting to collect debts from you, but will help during your bankruptcy proceedings until you can discharge your debts. 

Automatic Stay in Bankruptcy Proceedings

An automatic stay can help you in certain situations where you are being sued over an unpaid debt, or your wages are being garnished to pay for that debt. If you owe a credit card debt, and the creditor has now filed suit against you in order to collect the debt, the automatic stay will prevent the creditor from proceeding with the lawsuit against you until the bankruptcy is finished. Likewise, if your wages are being garnished to pay a debt or debts that you owe, which can really reduce your employment income, the garnishment must stop during your bankruptcy proceedings. 

The automatic stay also can help in some circumstances where you are about to lose your home. If your home is being foreclosed on by your mortgage company, the bankruptcy can temporarily stop the foreclosure process, which may give you more time to move or find a new place to live. While bankruptcy won’t stop the foreclosure permanently, you will at least gain some time in order to decide what to do about your home. Similarly, if you are being evicted from a rental home, the automatic stay may have an effect on the eviction proceedings. There are some exceptions to these rules based on individual cases, but in any event, the automatic stay may help give you additional time to make other housing arrangements. 

Exceptions to Automatic Stay

There are certain situations, though, where the automatic stay cannot help you with your bill collectors. For example, if the IRS is auditing your income tax return, that audit will not stop because you have filed for bankruptcy. Another common situation where the automatic stay is not helpful is child support. If you owe child support, you still have to pay child support while your bankruptcy is going on, and if you don’t, a court order for child support can still be enforced against you. 

You’ll also need to keep in mind that there are ways for certain creditors to get around the automatic stay. For instance, if your house is being foreclosed on, and you will be unable to keep the house or pay the mortgage, then it is likely that the mortgage company or bank will ask the bankruptcy court to lift the automatic stay. Getting the automatic stay lifted allows the creditor to go ahead and proceed with its collection action; in the case of a foreclosure, then, your mortgage company would be able to go ahead and foreclose on your house, and then sell the house in order to get at least some of its money back.