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How does the automatic stay impact garnishments and collections?

On Behalf of | Mar 27, 2023 | Bankruptcy

People who’re swimming in debt may benefit from filing for bankruptcy. A person who takes advantage of this opportunity will have the benefit of an automatic stay, which is a court order that halts collection attempts by creditors.

The automatic stay, garnishments and collection attempts are all interconnected aspects of the debt collection process. Understanding their relationship can help individuals better navigate their rights and obligations when they are facing financial difficulties.

Relationship between collection attempts, garnishments and the automatic stay

The automatic stay can play a crucial role in the relationship between garnishments and collection attempts. When a debtor files for bankruptcy, the automatic stay immediately stops all collection activities, including garnishments and other collection attempts. This means that creditors are prohibited from initiating or continuing wage garnishments, bank account garnishments and any other collection activities while the stay is in effect.

Because creditors aren’t likely to receive the full balance owed, the automatic stay also serves the important purpose of putting all creditors on an equal footing during bankruptcy. During the bankruptcy process, a trustee determines the priority level of each debt. The trustee then pays each creditor according to what they’re due based on that priority level.

During the bankruptcy process, the debtor may have the opportunity to negotiate new repayment terms, discharge certain debts or liquidate assets under the supervision of the bankruptcy court. This can help the debtor address their financial issues and provide a fresh start. Garnishments for creditors that are part of the bankruptcy are halted because of the automatic stay.

It is important to note that some types of debts are not subject to the automatic stay, such as child support, alimony and certain tax obligations. In these cases, garnishments and collection attempts may continue despite the bankruptcy filing. If you’re considering filing for bankruptcy, you should learn about how the automatic stay and other aspects of bankruptcy will apply to your current collection actions so that you can make informed decisions about your options.