Bankruptcy protects people from aggressive collection efforts. Many people choose to file for bankruptcy when they are at risk of foreclosure on their homes, vehicle repossession or creditor lawsuits.
The automatic stay provided at the time of a bankruptcy filing can prevent the escalation of collection efforts. Creditors must dismiss pending lawsuits and stop making calls attempting to collect on debts. How long does the automatic stay typically remain in effect during a bankruptcy case?
Protection lasts until the resolution of the filing
In a consumer bankruptcy filing, the automatic stay provided by the courts typically takes effect immediately. Creditors may learn about the bankruptcy the same day or within a few days of the filer submitting paperwork to the courts. The automatic stay typically remains in effect until the courts either grant the filer their discharge at the end of the bankruptcy process or dismiss the bankruptcy case.
Occasionally, creditors can ask the court to lift the automatic stay. In cases involving allegations of financial fraud or other unusual circumstances, creditors can request hearings in court known as adversary proceedings.
A judge can lift the automatic stay if they agree with the creditor’s claims, allowing them to resume collection efforts. In most other scenarios, creditors are subject to the restrictions of the automatic stay until the final resolution of the bankruptcy case. If the debt is eligible for discharge, they cannot resume collection activities even after the completion of the legal process.
Understanding what happens during personal bankruptcy can help people time their filing and optimize the benefits they derive. Those expecting pushback from creditors or facing violations of the automatic stay protections granted by the courts may need assistance asserting their rights under the law.