Are you aware of its benefits and drawbacks?
Automatic stay is considered to be one of the essential benefits of filing bankruptcy. This automatic stay is granted by the bankruptcy court and it protects the filers from further creditor harassment. The filers who are constantly harassed by the creditors to retrieve the owed amount can reap the benefit from the automatic stay.
The stay protects the filers by stopping any legal proceedings that are filed against them by the collection agencies to retrieve the owed amount. Therefore, automatic stay stops lawsuit against you and most of the action against your property by the creditors or collection agencies. So, automatic stay is one of the reasons to file bankruptcy if the debtors are evicted, being foreclosed on the property and so on.
What is the power of automatic stay in bankruptcy?
Under section 362(a) of the bankruptcy code, the automatic stay states that the honest debtors planning to start afresh may find a solution to their problems with automatic stay. If the debtor files bankruptcy and the court grants automatic stay, then it may free the individual from any collection activities. But people who owe the debt once the bankruptcy process is completed, like the student loan or tax debt, these debts can’t be collected as long as automatic stay is in place.
As a matter of fact, filers are required to know that the automatic stay isn’t permanent and it doesn’t claim that bankruptcy proceeding will be successful. The main purpose behind placing automatic stay is to provide breathing room while an individual goes for Chapter 7 liquidation or Chapter 13 repayment plan.
What are the specific use of automatic stay?
Here are some points that the automatic stay prevents:
1. Prevents Foreclosure: If the creditors plan to foreclose on your property, then the automatic stay may stop the proceedings. However, the creditor can start withforeclosure proceedings in course of time after the completion of the bankruptcy process if the debt is not paid off. In case, you’re facing foreclosure, filing under chapter 13 bankruptcy is a better option than Chapter 7 bankruptcy, if you want to keep your home.
2. Collection of overpayments of public benefits: If you receive overpayment of public benefits, then the agency is entitled to collect the overpayment out of the future checks. But the automatic stay placed due to bankruptcy prevents the collection.
3. Stops wage garnishment: Filing bankruptcy stops more than one wage garnishment. In the course of time, you can manage to discharge your debts as well as prevent collection activities.
What automatic stay can’t prevent?
Here are some of the points that automatic stay can’t prevent:
1. Tax proceedings by IRS: The automatic stay can’t stop the IRS from issuing a tax lien or seizing your property.
2. Can’t prevent support actions: You can prevent child support collection or alimony by filing bankruptcy.
3. Can’t prevent repayment of loan from a pension: Automatic stay does not prevent repayment of a loan from certain types of pensions.
Therefore, you’re considered the benefits as well as drawbacks of automatic before filing bankruptcy. The benefits of the automatic stay may overshadow its drawbacks when you file for bankruptcy.