Consider Automatic Stay Before Filing for Bankruptcy

For most if not all people, bankruptcy should be a measure of last resort. The financial costs of filing for bankruptcy and the stain it can leave on one's credit history are among the important concerns that face the prospective petitioner. A rather valuable aspect of an automatic stay is that it takes effect right after the debtor files a petition for bankruptcy. In fact, the bankruptcy court with jurisdiction over a particular case will not even require that a separate hearing be held for the judge to recognize a bankruptcy stay order.

Upon receiving formal notice, though, it is creditors who must take care to recognize the authority of an automatic stay, as it mandates that they may not make any more demands of the debtor of a financial nature. This includes making persistent calls, as well as court-ordered wage garnishment and civil lawsuits filed by the creditor to try to collect on its loan(s).

Thus, the inherent value of a bankruptcy stay to the debtor is that it works quickly and, especially in incidences of reorganization plans, gives individuals and businesses a chance to formulate their plans with less distraction and more peace of mind than they otherwise would have.

Nonetheless, the protections of automatic stay have their limits. For one, while it may prevent lenders from filing suits to try to get money back on their investments, in the event the debtor commits fraud or some other kind of crime, they still stand to be litigated against in adversary proceedings. In addition, automatic stay does not necessarily apply to all debts, meaning that certain collection actions may continue even though others have stopped.

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