How does bankruptcy protect you?

Financial struggles are nothing new to many people here in Massachusetts, just like other parts of the country. If you are in the midst of a monetary crisis, you can probably empathize with others who are in the same position. Like them, you may have tried cutting your budget, eliminating luxury items and more, but nothing seems to work. There just isn't enough money left at the end of your paycheck.

Maybe you've heard other people talk about bankruptcy and think it may be right for you. However, you want to know just what types of protections it can offer you before taking that step.

The benefits of the automatic stay

When you file for either Chapter 7 or Chapter 13 bankruptcy, referred to as the personal or consumer chapters, an automatic stay goes into effect. Most people know that this keeps creditors, lenders and collection agents from harassing you and pursuing a debt, but it does more than that:

  • If your mortgage loan lender started foreclosure proceedings, the automatic stay stops them, but it may only be temporary, depending on your circumstances. If keeping your home is a priority, you may want to consider Chapter 13.
  • If you are a renter and your landlord started proceedings to evict you, you may get a reprieve, unless the court already entered a judgment against you. Otherwise, you may only receive another few days or weeks.
  • You could get another 20 days or more to catch up on your utility bills if you've received threats of a shutoff for non-payment.
  • If someone is garnishing your wages, that stops during the bankruptcy as well.

If you receive or received government benefits, the automatic stay may not always stop a government agency from collecting on overpayments.

The limitations of the automatic stay

As much as you are looking forward to the benefits of the automatic stay, you also need to know that it won't stop collections of certain types of debts such as taxes, child support or loans from your retirement account or pension. If you have a debt connected to a criminal proceeding, filing for bankruptcy won't interrupt the criminal penalties associated with the debt, such as community service or jail time.

A second bankruptcy within a year also limits how long the stay remains in effect. Moreover, a creditor can ask the court to lift the stay in order to continue pursuing the debt.

Making the decision to file

Having the protection of the automatic stay is just one of the reasons for pursuing this debt relief option. You will also want to look at other aspects of filing for bankruptcy, including which chapter to file in order to achieve your financial goals.

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Attorney Christopher J. Fein

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