Bankruptcy: Understanding Automatic Stays and Creditor Harassment

Bankruptcy: Understanding Automatic Stays and Creditor Harassment
05 - Jul - 2023
Credit Card Debt

According to the Fair Debt Collection Practices Act, creditors are forbidden to engage in certain behaviors, such as 

1) lying about working for a government agency, 

2) threatening to have the debtor arrested, 

3) publicly shaming the debtor, 

4) trying to collect debt that is not actually owed, 

5) other types of harassment including excessive phone calls, swearing and threats. Knowing how severe creditor harassment can be, understanding how automatic stays protect a debtor when filing for bankruptcy is extremely important. 

Automatic stays are a key part of the bankruptcy process. When a person files for bankruptcy, an automatic stay immediately comes into effect. This legal action creates a kind of protective barrier around the person who filed for bankruptcy. It temporarily halts most types of legal actions against them, such as lawsuits, wage garnishments, and even evictions. This gives the person a chance to breathe, as they work on their bankruptcy case without the constant fear of financial threats. However, it’s important to note automatic stays don’t last forever, and there are some things they don’t protect against. 

Exploring the Function of Automatic Stays in Bankruptcy Proceedings

Automatic stays play an important role in bankruptcy proceedings by temporarily stopping certain actions from creditors. When a person files for bankruptcy, the automatic stay kicks in and typically prevents creditors from continuing with collection efforts. This means actions like foreclosures, repossessions, and lawsuits are generally paused. Automatic stays also halt wage garnishments, giving the individual some financial breathing space. However, it doesn’t mean debts are wiped out – it simply provides some temporary relief while the bankruptcy process unfolds. Additionally, there are certain types of debts and actions automatic stays don’t stop. So, while automatic stays provide important protection, they have limitations one must understand while going through bankruptcy proceedings.

Protections Provided by Automatic Stays: From Evictions to Utility Disconnections

Automatic stays can offer a range of protections when someone files for bankruptcy. One key protection is against evictions. A landlord generally cannot evict someone while the automatic stay is in effect, providing temporary housing security. Similarly, automatic stays can prevent utility disconnections. If a person is behind on utility bills and facing disconnection, the automatic stay can temporarily stop this from happening, ensuring access to essential services like electricity and water. Another protection is against wage garnishments. When the automatic stay is activated, most creditors cannot continue to garnish a person’s wages. These protections offer a temporary respite, providing a breather for individuals to focus on their bankruptcy proceedings without the immediate pressure of certain financial burdens.

The Limits of Automatic Stays: What It Can’t Protect You From

Automatic stays provide significant protections during bankruptcy proceedings, but they do have their limits. For instance, they generally can’t stop certain family law actions, like child support or alimony. Similarly, tax proceedings, like audits or demands for tax returns, typically aren’t halted by an automatic stay. If a person owes money to a secured creditor, like a mortgage lender, the automatic stay might not prevent foreclosure in the long term. Also, automatic stays are often limited for those who’ve previously filed for bankruptcy. The protections are generally shorter and may be denied altogether for multiple filings within a year. It’s also worth noting an automatic stay doesn’t erase debt, it just temporarily halts collection actions. 

When Creditors Can Challenge Automatic Stays: Exceptions to the Rule

While automatic stays typically stop creditors from pursuing collections, there are instances where creditors can challenge these protections. For example, in some cases, a secured creditor – like a mortgage lender – might ask the court to lift the automatic stay and may argue about not being adequately protected because their collateral, like a house or car, is decreasing in value. Similarly, if a person has filed for bankruptcy multiple times in a year, a creditor may challenge the automatic stay arguing the bankruptcy filing is being used inappropriately to delay collections. If a court agrees with the creditor, the automatic stay could be modified or lifted entirely, allowing the creditor to resume collection actions. 

How to Recognize Creditor Harassment: Key Warning Signs

Creditor harassment often begins subtly, then escalates over time. It’s important to know the signs to ensure one’s rights are upheld. Typical warning signs can include frequent and intrusive calls at all hours of the day or night, especially if these calls become aggressive or threatening. A creditor may also send numerous letters demanding payment, some of which might contain intimidating language. Other times, creditors might try to contact friends, family, or employers about the debt, which can be a clear violation of privacy. Another serious form of harassment is a lawsuit threatened or filed against the individual by the creditor. 

Taking Action: Steps to Stop Creditor Harassment After Filing for Bankruptcy

Once a person files for bankruptcy, the automatic stay typically stops most creditor harassment. It’s a violation of federal bankruptcy laws for creditors to continue collection attempts during the automatic stay. If creditors continue their aggressive efforts, steps can be taken. Firstly, it’s important to communicate with the creditor or collection agency, notifying them of the bankruptcy filing and the automatic stay. Often, this might be enough to stop the harassment. If not, documenting all interactions with the creditor, such as saving letters or recording details of phone conversations, can be helpful. This evidence can be used to show a court or a bankruptcy trustee the creditor has violated the automatic stay. It’s important to know one’s rights and the protections available under bankruptcy law to effectively address creditor harassment.

The Long-Term Impact: Understanding Automatic Stays and Creditor Harassment Post-Bankruptcy

Bankruptcy Attorney

Bankruptcy, automatic stays, and creditor harassment can have a long-lasting impact on an individual’s financial health. An automatic stay provides temporary relief from creditors during bankruptcy proceedings, but it does not eliminate debts. Once the bankruptcy process is completed, and depending on the type of bankruptcy filed, some debts may be discharged while others may still need to be repaid. Therefore, understanding how to manage debt and avoid future creditor harassment is key. Additionally, the fact of bankruptcy will appear on one’s credit report for several years, which can affect the ability to obtain credit, rent a home, or sometimes even get a job. Despite these challenges, many individuals can rebuild their financial life post-bankruptcy by learning about personal finance management, setting realistic financial goals, and steadily working towards them.

If you are filing for bankruptcy, contact us or call us at 866-696-6432 today for a free consultation.

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