How does the automatic stay stop foreclosures, repossessions or other collection efforts from taking place?
Just by filing a bankruptcy petition, an "automatic stay" against all collection efforts goes into effect. Creditors must stop all efforts to collect from you. Creditors must stop making calls to you, stop sending letters, stop all lawsuits to collect, and stop doing everything else to make you pay.
The automatic stay also stops foreclosures, repossessions or sales of property from going forward. If you don't pay your house payments, however, the creditor will have the right to continue the foreclosure after your bankruptcy case is finished. Thus, the benefits of the automatic stay may be temporary when the creditor is a secured creditor.
There are a number of exceptions to the automatic stay. Two important exceptions are:
- attempts to establish or collect alimony or support obligations
- criminal suits
Just remember that as to secured creditors, the automatic stay is temporary. It means only that creditors must ask the court before taking action. No bankruptcy filing allows you to keep property that is security for a loan without making payments on the loan. If you are behind on the payments and the property is of insufficient value to satisfy the debt, or there is risk of loss of the property, a secured creditor may obtain court permission to seize and sell the property.
In addition, in a chapter 7 case, as soon as the bankruptcy case is closed, the automatic stay terminates, and the secured creditor can proceed with foreclosure or repossession if you are behind on the payments.
If your largest debts are secured debts, you may be better off filing a chapter 13 case than a chapter 7 case because the chapter 13 will allow you to pay off the past-due secured debt over time.
In chapter 13, the automatic stay also protects people other than you who are "co-debtors". Co-debtors are people who also have an obligation to pay the same consumer debt as you do. That includes people who have guaranteed the debt for you.