The decision to file for bankruptcy is one that can have a major financial impact. It’s one way to address collection attempts and bills that just won’t stop coming, even though you don’t have the money to pay them.
Filing bankruptcy is a legal way to address these debts. Most consumers file Chapter 7, which is a liquidation bankruptcy, or a Chapter 13 bankruptcy, which is a wage earner’s bankruptcy. Both of these come with the issuance of an automatic stay by the court.
What is an automatic stay?
The automatic stay forbids creditors from trying to collect on your account outside of the bankruptcy system. They can’t send you bills in the mail, call you or contact you in any other manner.
When you file for bankruptcy, it’s highly unlikely that creditors will receive the full balance due. Issuing the automatic stay helps the court to prevent this, but it also helps to give you breathing room since creditors can’t contact you.
The court also benefits from the automatic stay. Once it’s issued, the bankruptcy court maintains control over how debts and assets are handled. This creates consistency and can reduce conflicts during the bankruptcy process by ensuring that each creditor only receives their fair share of what’s available.
Understanding each aspect of bankruptcy is critical for anyone who wants to file. While the automatic stay is a considerable benefit, the decision shouldn’t be made on this alone. It’s best to work with someone who understands your situation and how it will interplay with a bankruptcy. It’s best to do this as soon as you realize that there’s a problem with your finances that you may not be able to correct.