How the automatic stay benefits consumers
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How the automatic stay benefits consumers

| Apr 6, 2020 | Bankruptcy

One big reason Minnesota families choose to file for a bankruptcy is what the law calls the automatic stay.

The basic idea of the automatic stay is that it stops a debtor’s creditors from continuing their collection efforts. By doing so, it creates some stability for a family in financial hardship.

It also allows the family to pursue their bankruptcy, and resolve matters with their creditors, without having to worry about a creditor seizing property, garnishing wages and the like.

An automatic stay is named such because a debtor automatically gets it by filing for bankruptcy in most cases. However, the stay is not always simple or easy to understand. It is important for those in the Mankato area who are thinking about a bankruptcy to understand a bit about how it works.

Benefits of the stay

The automatic stay offers broad protection to families.

  • A creditor may not file a lawsuit or a lien against a family’s property.
  • A creditor may not garnish wages, hall a debtor into court to answer questions about their assets or take other steps to legally collect their debt.
  • The automatic stay will temporarily stop foreclosures and other court-sanctioned sales of property.
  • A creditor may not take steps to pursue any debt that arose before a family filed the bankruptcy. This includes making collection phone calls.

Exceptions

There are certain types of cases to which an automatic stay does not apply.  For example, many types of family law proceedings and almost all criminal proceedings are not subject to the stay.

However, in some family law proceedings, the stay may apply. A good example is where a person filing bankruptcy owes money to his or her former spouse because of a prior property division in a divorce.

Finally, creditors can ask for permission to take certain collection actions despite the existence of an automatic stay.

End of the stay

In most cases, unless the court orders otherwise, the stay will continue until the end of the bankruptcy or until it becomes clear that the debtor’s property is not going to be distributed through the bankruptcy.

However, those who have filed multiple bankruptcies may get the benefit of an automatic stay for 30 days and then will have to ask for an extension. Others may have to ask for the stay immediately.