Arguably the most important tool in the bankruptcy arsenal is the application of what is known as the automatic stay. The moment your bankruptcy lawyer files your bankruptcy petition, the Automatic Stay goes into effect. The automatic stay prevents your creditors from filing lawsuits against you or your property. Therefore, it blocks your creditors’ efforts to collect on your debt to them.
If you are facing foreclosure, eviction, loss of utilities, contempt for failure to pay child or spousal support, or almost any other problem relating to your inability to pay your creditors, the automatic stay will offer you immediate relief. The automatic stay is essentially a pause button that allows you to catch your breath and get a hold of your debts so that you can clear them and move on with your life.
In fact, the application of the automatic stay is the reason many people file for bankruptcy in Utah. If your debt is not one of the kinds of non-dischargeable debt I talked about in my previous post about whether bankruptcy is right for your situation, then you should be able to take advantage of the automatic stay to prevent further foreclosure, repossession, and harassment from creditors. There are, as always, some guidelines:
WHAT THE AUTOMATIC STAY PREVENTS:
Foreclosure: This is the big one. The automatic stay is so powerful that it will actually stop the bank from foreclosing on your house. Although it often seems smarter from a financial standpoint to simply let your house go; understandably, homes have a deep sentimental value, and some of my clients want to do everything they can to keep their house. Filing for bankruptcy is the first step in this process. These clients will generally have to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy, especially because Utah bankruptcy laws allow a very small exemption for homes as compared to other states. Your bankruptcy attorney should be able to explain this to you in detail. (If he or she can’t do this, you need to hire someone else!)
Eviction: The bankruptcy code does not offer as much protection to debtors filing for bankruptcy against eviction as it does with foreclosure. Filing for bankruptcy can often give you at least a temporary solution, however. If you’re facing eviction, talk to a bankruptcy lawyer about whether bankruptcy can help you in this situation.
Other actions such as wage garnishment, utility disconnection, tax seizures, etc. Talk to your bankruptcy attorney about these as well.
WHAT THE AUTOMATIC STAY DOES NOT PREVENT:
IRS proceedings: The IRS cannot seize your property or income, but they can still demand tax returns, and perform audits and assessments.
Lawsuits seeking to collect child or spousal support.
Criminal prosecution. If you’ve been charged with a crime, you may need talk to a criminal defense attorney instead of a bankruptcy lawyer.