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How the automatic stay can influence bankruptcy timing

On Behalf of | Nov 7, 2023 | Bankruptcy

For some people, filing for bankruptcy is a decision that they make very slowly. They recognize that every month, their financial circumstances become a little more difficult. Eventually, when they have to start choosing what bills to pay, they decide to file for bankruptcy in the hopes of regaining control over their budgets.

Other times, bankruptcy occurs because someone faces a personal financial emergency. A creditor has served them with paperwork for a lawsuit or attempted to repossess their vehicle. They might even worry about foreclosure and the loss of their primary residence because they have fallen behind on payments and don’t know how to catch up on them.

The automatic stay granted when someone files for bankruptcy often influences the timing of someone’s filing, as it can protect them from huge losses related to debt collection efforts.

How the automatic stay works

Bankruptcy would not be particularly beneficial if people had to complete the process to derive any protection from it. The same day that someone files their paperwork with the courts, they receive an automatic stay that will temporarily prevent collection efforts. Lenders have to pause lawsuits and halt foreclosure or repossession efforts. They will also have to cease calling someone and sending them notices about their past due accounts until the courts resolve the bankruptcy filing.

Most people will benefit from obtaining an automatic stay before creditors secure a judgment against them or repossess their vehicles.  Someone might choose to file for personal bankruptcy the day after a process server hands them paperwork for a debt-related lawsuit or tapes those documents to their front door. Others will file for bankruptcy because they have missed mortgage or car payments and recognize that aggressive collection activity is likely right around the corner.

For those facing harsh collection efforts and worried about their financial stability, a timely bankruptcy filing can make all the difference. Both Chapter 13 and Chapter 7 bankruptcy will provide someone with an automatic stay until the courts either discharge their debts at the end of the process or dismiss their bankruptcy filing.