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How Does Bankruptcy Stop Garnishments, Foreclosures, And Repossessions?

Bankruptcy and Garnishments, Forclosures & Repossessions

Filing for bankruptcy gets immediate protection for you, your paychecks, your home, and all your possessions. This is called an automatic stay. It provides this protection for you and your property whether you file a Chapter 7  straight bankruptcy case or a Chapter 13 adjustment of debts case. Virtually all efforts by any of your creditors to get your money or anything you own comes to automatic standstill.

Here are some terms and their definitions to help you understand some of the concepts we are talking about:

“Automatic Stay” = Immediate Stop

“Stay” = stop or freeze

Automatic means this stay goes into effect immediately once you file your bankruptcy petition. The act of filing itself, according to the federal Bankruptcy Code, “operates as a stay of virtually all creditors’ actions to pursue a debt or take possession of collateral.” Since the filing of your case imposes the stay, there is no delay or doubt as to whether a judge will sign an order to impose the “stay” on your creditors.


Creditors Need to Be Informed, Sometimes Directly

Although the protection of the “automatic stay” is imposed instantaneous, practically speaking your creditors need to be informed about the filing of your case so they are aware they must comply. If all your creditors are listed in your bankruptcy case documents, they should be informed by the bankruptcy court within a week or so of your case being filed. This doesn’t require any additional action by either you or your attorney (beyond making sure all your creditors are listed in the schedule of creditors filed at the bankruptcy court). If you have no reason to expect any action by your creditors before that, letting them be informed by the court is usually all that’s needed.

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However, if you are expecting any kind of action by any of your creditors sooner than a week or so after filing the case, be sure to talk with a bankruptcy attorney about it. That way any creditor who would take action can be directly informed about your bankruptcy filing and stop whatever collection action it was contemplating. Make sure you and your attorney are clear which of you is informing that creditor and in what way.


Creditor Action Taken Unexpectedly

But what if a creditor hasn’t been informed of your bankruptcy filing when it takes some kind of action against you or your property in the days after your bankruptcy filing but before they know about it?

If this happens, the “automatic stay” can be so powerful, this creditor must undo whatever action it has taken against you after your bankruptcy was filed, even if they did not know about your filing. For example, if after your bankruptcy is filed a creditor files a lawsuit against you or gets a judgment on a lawsuit that it had filed earlier, the creditor must dismiss its lawsuit or vacate the judgment.


If you have any other questions about filing for bankruptcy or what it means to bankruptcy stop garnishments, foreclosures, and repossessions, please feel free to contact us at (765) 420-8900. Or feel free to stop in at our Lafayette, Indiana office.