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How an automatic stay works in bankruptcy

On Behalf of | Sep 14, 2021 | Bankruptcy

One of the biggest fears for people owing money in Texas is to have their life controlled by creditors, who may have the power to garnish debtors’ wages and hold their assets for years. An automatic stay is one solution to protecting your finances as you work through a bankruptcy.

The benefits of an automatic stay

After filing for bankruptcy, the automatic stay is a temporary cessation of all collection efforts from creditors. These are creditors who want to continue pursuing legal action against debtors. An automatic stay allows you to reorganize your finances without fear of having your assets taken by creditors. After the bankruptcy has concluded, the automatic stay is removed.

Special circumstances

A bankruptcy discharge can result in the court lifting an automatic stay to proceed with another legal action. A stay is often lifted to allow the proceeding of a divorce case, for example. Usually, a more important court case is given precedence over a bankruptcy case.

In some cases, a creditor can prove that a person was negligent in paying off a debt and encourage the judge to lift the stay. This occurs if you have an outstanding balance on an asset whose value has decreased to below the amount owed. A creditor can try to prove that the owner deliberately reduced its value.

When the court is not on your side

Most people have certain expectations when filing for bankruptcy. They believe that they will automatically receive certain protections, including an automatic stay, but this is not the same for every case. Although you may fear creditors, it’s not always possible to get the court to work on your side. You must know your legal rights as a person who seeks bankruptcy.