One of the great annoyances of being delinquent on one or more accounts is the seemingly constant stream of calls from creditors seeking to collect on the debt. While many residents of Washington know that filing a bankruptcy petition can bring these calls to a halt, very few understand exactly how this happens. Understanding the basic mechanism of what is called the “automatic stay” ban help a person decide to proceed with a bankruptcy petition.
The automatic stay
A “stay” is a court order that prevents one or more parties from taking any action described in the order. When a person files a petition for a judgment of bankruptcy under either Chapter 7 or Chapter 13, the clerk of court immediately and automatically issues a stay order addressed to all of the creditors identified by the petitioner. The stay order tells every creditor to stop all collection actions against the petitioner. The penalty for disobeying a stay order can be very severe, and most reputable business entities will obey the order without any further action by either the court or the debtor. The stay remains in effect until the court issues its final judgment discharging the petitioner’s debts or denies relief for another reason.
Certain debts not affected
The United States Bankruptcy Code lists several types of proceedings that are not affected by an automatic stay. These proceedings include an action to determine paternity, the modification of an order for domestic support obligations, or concerning child custody or visitation, or concerning domestic violence. A past due obligation to pay child support or spousal support is likewise not affected by the automatic stay. Also exempt from the automatic stay are debts owed for taxes due any governmental agency.
Relief from the stay
A creditor or any other party in interest regarding a debt subject to the stay may petition the bankruptcy court for relief from the stay. The petitioner must provide notice of the request to the debtor before the petition will be heard by the court.
The decision to file a bankruptcy petition can be very difficult. A petition should not be filed merely to obtain the protections afforded by the automatic stay. A conference with an experienced bankruptcy attorney can provide a helpful overview of a person’s financial condition and the overall wisdom of filing a bankruptcy petition.