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It is common knowledge that bankruptcy can help stop harassing phone calls and help individuals get a fresh start, but how does it work? What happens when you file for bankruptcy? The second your case is filed, the Court will assign you a case number and the “automatic stay” will go into effect. This is the same whether you file for protection under Chapter 7 or Chapter 13 of the US Bankruptcy Code.

The automatic stay essentially puts a block on your debt which prohibits creditors from continuing to pursue their collection attempts. The harassing phone calls stop. Moreover, creditors cannot garnish your wages or take money from your bank account while the automatic stay is in effect. Further, your creditors will be prohibited from filing a lawsuit against you for a debt accrued prior to filing or pursue a sale of your property through foreclosure. In other words, if you were facing a lawsuit, repossession, sheriff sale or tax sale this would, in essence, halt those events from moving forward.

Can Creditors Modify the Automatic Stay?

In some circumstances, a creditor may be able to file a Motion for Relief and ask the Court to modify the automatic stay and remove the bankruptcy protection. This is common in Chapter 13 cases where individuals are not making their monthly plan payments to the Chapter 13 Trustee or their mortgage company.   In these instances, the matter will likely go to a hearing in which your bankruptcy attorney would represent your interests and communicate to the Court the reasons payments were not being made. Ultimately, the Judge would hear both sides and then rule on the motion.

If a creditor is granted their motion for relief, the bankruptcy protection would be removed and the creditor would be given permission to proceed with their collection attempts. It is important to note, however, that this relief would be specific to the creditor who filed the motion and obtained court approval not all of your creditors.

In a Chapter 7 bankruptcy, the Debtor must remain current on their secured debt (i.e. house and car) obligations or a creditor will be able to repossess or pursue a foreclosure or sale. In regards to collection attempts for unsecured debts such as collection attempts for medical bills or credit cards, the automatic stay will take effect immediately upon filing. Your bankruptcy lawyer will serve proof of bankruptcy filing on your creditors to inform them of the automatic stay and to prevent further collection attempts from continuing. For this reason, it is extremely important that you hire a licensed and experienced bankruptcy attorney, such as Foster Law Offices, LLC to represent your interests and to clearly explain the differences between each chapter of bankruptcy filing.