What is an automatic bankruptcy stay?
For some consumers, bankruptcy is the most obvious way to get out of debt, and a big advantage is that it limits what debt collectors can do. An automatic stay is a tool that prevents creditors and other agencies from attempting to collect outstanding debts after bankruptcy is filed. While this limits what creditors can do, some agencies are exempt and others may have the stay lifted automatically.
What is an automatic stay?
An automatic stay is an injunction that comes into effect when bankruptcy is filed. An automatic stay prevents some creditors from pursuing debt collection against someone. For example, if you’re behind on your mortgage or car loan and file for bankruptcy, lenders can’t foreclose on your home or repossess your car.
The Chapter 7 and Chapter 13 cases – the two most popular types of bankruptcy – allow an automatic stay. Chapter 7 is a liquidation bankruptcy, where your property is sold to pay off your unpaid debt. Chapter 13 is bankruptcy reorganization; your property is not sold, but you are bankrupt until your repayment plan is complete.
In either case, an automatic stay allows you to settle your finances before creditors can attempt to collect a debt.
What types of debt are included in an automatic stay?
Some debts that are included in an automatic stay are:
- Foreclosure: An automatic suspension puts an end to the foreclosure procedure, allowing you to keep your home as long as your bankruptcy case is open.
- Some evictions: An automatic stay can give you temporary help, but in many cases a landlord can continue with the eviction process.
- Utilities: An automatic shutdown prevents your utilities from being cut for at least 20 days.
- Government benefits: If you are receiving government benefits – Medicare, SNAP, or unemployment benefits, for example – and you’ve been overpaid for one of them, the agency can usually collect that overpayment. An automatic stop stops this collection.
- Most payday garnishments: If you have filed for bankruptcy, an automatic stay will end the wage garnishment. Depending on the debt, he could be discharged in bankruptcy.
How long does an automatic stay remain in effect?
An automatic stay is in effect as long as your bankruptcy is in effect. The type of bankruptcy will determine how long your stay is active. For Chapter 7, it’s usually a few months. For Chapter 13, it could take three to five years.
However, if you have had another rejected bankruptcy case in the past year, the automatic stay will only last for 30 days. Having other cases pending on your file may not justify a stay.
What happens after an automatic stay is lifted?
Since an automatic stay keeps most debt collectors and lawsuits away from you, lifting a stay or closing a bankruptcy case means they can contact you again.
Creditors and debt collectors can also file a motion to withdraw (or lift) the stay before the bankruptcy case is closed. If the creditor can prove that an automatic stay is hurting their business – for example, if they can prove that they are losing money in their business – the court can grant their claim. But it’s usually on a case-by-case basis, and not all courts approve of lifting an automatic stay.
Ways to bounce back from bankruptcy
For many people, bankruptcy is a last resort. If this is where you are headed, you can grieve the setback, but take a moment to see it as a fresh start. You have a chance to start over. And with this, you can take certain steps to get your finances back.
Create a new budget
With the debt behind you, create systems that work for you and your family. Whether you use an app, create a spreadsheet, or write everything by hand, a budget is your best tool for controlling your finances.
First, you will detail the money you receive, such as your regular paychecks or money from a sideline. Then you will list the cost of your needs, such as paying for your house, utilities, insurance, food, gas, and anything that requires monthly payments. Some things like food and gas aren’t set in stone, so try to budget for them.
It’s a good idea to give yourself a little leeway and start putting some money aside for an emergency fund. If something unexpected happens, like an emergency room or urgent car repairs, an emergency fund covers the costs so you don’t have to borrow money with a credit card or loan. If you have recent bankruptcy, you’ll have a hard time getting either, so try to save as much as possible to pay for emergencies out of pocket.
Configure automatic payment
Anything you can put on auto pay, you should. On-time payment history will be a huge boost to your credit score (which you need after bankruptcy). The less you have to remember, like due dates and amounts owed, the more time you can spend on other needs.
If you don’t have a payment for your home or car, ask your utility companies to report your payments. Even your water bill or your payment over the phone can make a difference.
Take your time
Bankruptcies can stay on your credit report for up to 10 years, which takes a long time to rebuild your credit. Avoid falling for scams that claim you can recover from bankruptcy in weeks or months, and stay away from companies that ask for money to rebuild your credit.
Your credit score won’t be good for a while, so try not to rush into something that might put you into old habits, like running credit cards, missing minimum payments, and buying things that you can’t afford. can’t afford.
Also, try to use cash as much as possible until you can responsibly use credit cards. If you get a credit card, consider a secure credit card that reports your payments to major credit bureaus. You will get positive account activity while spending prudently.