Many individuals in Indianapolis suffer financial difficulties from over-used credit cards, medical bills, a sudden loss of income or similar misfortunes. One of the most troubling aspects of being mired in excessive debt is the never-ending stream of collection efforts by a person’s creditors. Bankruptcy offers an escape from being debt ridden, but many people regard this option as something of a personal disgrace.
Understanding the effect of filing a bankruptcy petition may serve to see the redeeming potential in seeking protection from creditors by filing a petition under either Chapter 7 or Chapter 13 of the Bankruptcy Code. Which chapter to choose is beyond the scope of this post, but understanding how the automatic bankruptcy stay operates is something everyone should know.
What is the automatic stay?
When a person files a petition for bankruptcy under either Chapter 7 or Chapter 13, the clerk of the bankruptcy court where the petition is filed must issue a stay order that prevents creditors from taking any further actions to collect a payment from the petitioner. A “stay” is an order from a court that stops, i.e., stays, the actions described in the order. The stay issued by the bankruptcy court is directed at all creditors identified by the debtor in the petition.
The stay prohibits the commencement or continuation of any action to collect a debt from the debtor. The stay does not affect certain civil proceedings, including an action to establish paternity, an action to establish or modify an order for domestic support and actions concerning child custody or visitation and regarding domestic violence. The stay also does not apply to an action to collect income tax or any other form of tax.
Lifting the stay
A creditor may file a motion with the bankruptcy court for relief from the stay. If the motion is granted, the stay will not prevent the moving party from taking action to collect the obligation owed by the debtor to that creditor. The stay expires on the date of the final order adjudicating the status of the debtor.
Reaching out to a bankruptcy lawyer
Anyone considering filing a bankruptcy petition should learn as much as possible from a knowledgeable bankruptcy lawyer about the effect of the automatic stay and the exceptions to the federal statute that creates the automatic stay. Filing a bankruptcy petition requires a number of critical decisions, and the advice of a bankruptcy attorney is key to making the proper choices.