Bankruptcy protection is made available to consumers who can’t pay their creditors or debts to help resolve the debt burden. One of the major benefits of filing for protection under Chapter 7 is that many creditor actions are stayed or brought to a standstill. This means that any debt collection efforts and foreclosure procedures are halted.
Once a creditor or bill collector has been notified that a consumer has filed for bankruptcy protection, the bill collector or collection agency must stop all efforts to collect the debt. There are certain and limited exceptions to that rule.
In a bankruptcy filing, the consumer or legal representative has to file a petition to the court and ask to discharge the debts. After the bankruptcy petition is filed, the court mails a notice to all the creditors listed in the schedule of creditors supplied to the court. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor. The process may take up to several days.
The stay or postponement of collection efforts arises by operation of law and requires no judicial action. If a creditor or collection agency continues to use collection tactics once informed of the bankruptcy they may be liable for court sanctions and attorney fees for their conduct. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments.
Bankruptcy law is generally established to protect debtors who are in debt beyond their ability to repay the debt are a given an opportunity for a fresh start through the discharge of debts in a bankruptcy proceeding. Each state has its own bankruptcy laws, so you need to check with your state for details.
There are two basic types of consumer bankruptcy proceedings. Under a Chapter 7 bankruptcy filing, the petition to the court is a request to discharge all debts while a Chapter 13 bankruptcy filing, the petition is to pay off some of the debts over a period of three to five years.
The information is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of consumer bankruptcy.