People only live once. Seize bankruptcy as an opportunity to stop collections with the automatic stay. The automatic stay is a court order effective immediately upon filing bankruptcy and usually stays in effect until a creditor obtains relief from automatic stay.
Creditors who continue to collect after a debtor files bankruptcy are in violation of the law. However, a person should be careful about filing bankruptcy too many times. Sometimes, when a person re-files bankruptcy after a case gets dismissed, the automatic stay may expire before a bankruptcy case is over.
With the protection of the automatic stay, the trustee or court notifies all creditors of a debtor’s bankruptcy petition and explains their rights to object, or question the debtor, on the bankruptcy. Objections by creditors can be met by negotiating with a creditor, lawsuit, converting a case filed under Chapter 7 to Chapter 13, or voluntary case dismissal.
The automatic stay of bankruptcy prevents creditors from:
• Garnishing wages
• Filing collections lawsuits
• Putting liens on property
• Reporting debt to a credit reporting agency
• Foreclosing on homes
If facing an eviction in New York, bankruptcy may stop a landlord from enforcing the eviction order during bankruptcy. If the landlord doesn’t file a motion for relief from automatic stay, the landlord can continue to evict if:
• There is already a judgment for possession before filing bankruptcy
• Debtor gets evicted for endangering property
Some collections proceedings cannot be stopped by filing bankruptcy:
• IRS proceedings such as tax assessments, tax audits, tax deficiency notices
• Child support and alimony payments
• Child custody
• Withholdings from income to repay loans taken out from ERISA qualified retirement benefits (e.g. 401(k) plan)
To lift the stay, the creditor files a formal motion. The debtor will be notified and given the opportunity to object to the motion. While the motion for relief from automatic stay gets on the court calendar, the debtor buys time to renegotiate the debt, or to let go of the property.
When seeking to take advantage of bankruptcy options, engage an experienced New York bankruptcy attorney who understands collections activities.