Tennessee residents who are considering bankruptcy are likely being contacted by creditors. These creditors are trying to collect on the debts that are owed to them. Once a bankruptcy is filed, however, these creditors will no longer be able to call consumers or engage in debt collection.
When a bankruptcy is filed, a legal device called the automatic stay goes into effect. The automatic stay automatically stops all collection activities from the moment the bankruptcy petition is filed. Under U.S. bankruptcy laws, no action other than filing the petition is necessary to start the automatic stay.
Once the automatic stay is in effect, creditors cannot collect on a debt or take action against a debtor. This means that the automatic stay will stop creditor calls and collection efforts including repossession. Additionally, the automatic stay will stop eviction and foreclosure proceedings making it possible for people to stay in their homes during a bankruptcy. The automatic stay also prevents utility companies from shutting off service for at least 20 days.
Wage garnishment is also precluded by the automatic stay. This means that creditors will not be able to collect a portion of a person’s public benefits or take money from a person’s paycheck.
With all the benefits of the automatic stay, there are some drawbacks. The automatic stay cannot stop child support, criminal proceedings or repayment of a loan from a pension plan. Furthermore, it will not stop certain tax proceedings including demands from the IRS to file a tax return. Finally, there are certain situations where creditors can remove the automatic stay and collect a debt.
Source: FindLaw, “The Automatic Stay: Stopping Creditors with Bankruptcy,” accessed Aug. 3, 2014