The foundational goal of the bankruptcy system is to provide deserving debtors with relief from their debts so that they can obtain a “fresh start.” This process starts at the moment that a debtor files for bankruptcy case through the “automatic stay.” The automatic stay is a portion of the Bankruptcy Code that prohibits almost all creditors from taking any action to collect a debt from a debtor once the debtor has filed for bankruptcy. This includes credit card companies, medical bill collectors, and most other “trade” creditors. It can even stop a foreclosure lawsuit or sale from continuing, provided that the bankruptcy is filed with sufficient time left before the sale. However, the automatic stay does not prevent certain specific creditors from continuing to collect their debts, including creditors seeking domestic support payments or the commencement or continuation of a criminal action against the debtor, among other things.
The automatic stay will remain in place throughout a debtor’s bankruptcy case, unless a creditor is granted “relief” from the stay by the bankruptcy court. To obtain this relief, the creditor must file a formal, written request with the bankruptcy court, asserting the reasons why the creditor should be granted relief. A debtor can choose to oppose the motion and try to convince the bankruptcy court not to grant relief to the creditor. Alternatively, in some cases, it can actually be a better decision for the debtor to agree to grant the creditor stay relief because doing so would allow the debtor and the creditor to proceed towards some type of agreement. For example, a debtor might decide to surrender his or her house to the bank holding a mortgage on the house in lieu of paying back the amount owed. To do so, the debtor could agree to grant the bank relief from stay so that it could go ahead and begin (or continue) the legal process to take possession of the house.
If you are considering bankruptcy because of the stress of pressing financial issues, consider the benefits that the automatic stay provides to debtors who qualify for bankruptcy relief. Consult with a bankruptcy attorney to consider the ways that the automatic stay could address your unique problems, and remember that the earlier you try to address financial problems, the more options you’re likely to have and the more effective your bankruptcy counsel can be for you.