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What is the automatic stay granted during bankruptcy?

On Behalf of | Nov 12, 2023 | Bankruptcy

The goal of a personal bankruptcy filing is the discharge of personal debts. Someone who successfully completes bankruptcy no longer has to worry about paying certain financial obligations. However, a discharge can take months or even years to obtain. The type of bankruptcy someone files influences how long it takes to secure a discharge as well as how much debt someone can discharge.

Those who file for bankruptcy often time their decision based on the need for an automatic stay. They are in the midst of financial hardship and need immediate support. What is the automatic stay that the courts grant when someone files for bankruptcy?

It forces the end of collection activity

An automatic stay is essentially a forced break in collection efforts. The stay begins with notice from the courts of a pending bankruptcy action. The courts send information to the credit bureaus. Those businesses in turn relay bankruptcy information to individual companies.

Most financial institutions and collection agencies receive reports that notify them if someone they do business with has filed for bankruptcy. The automatic stay prevents creditors from continuing to call or send letters. It can lead to the dismissal of pending creditor lawsuits. Even efforts at vehicle repossession or foreclosure will typically halt during bankruptcy due to the automatic stay that the courts grant.

The automatic stay will prevent collection activity until someone finishes the bankruptcy process or the courts dismiss their filing. In rare cases, individual creditors may ask the courts to lift the stay so that they can resume collection activity. Understanding the benefits derived from a bankruptcy filing may help people currently struggling with their finances.