When debt becomes insurmountable, declaring bankruptcy may help you gain a fresh start. While the process can have its daunting moments, Chapter 7 and Chapter 13 bankruptcy proceedings may also provide you with assistance when it comes to constant calls and letters from lenders attempting to collect on your debt.
LendingTree notes that an automatic stay can stop this type of lender harassment, so if you are considering bankruptcy, understanding this process may help offer you peace of mind as you move forward.
The purpose of a stay
An automatic bankruptcy stay begins when you file for bankruptcy and is a court-ordered action that protects you from further debt collection. Most lenders must stop their collection attempts, including:
- Auto financing companies and banks
- Credit card companies
- Mortgage lenders
When you grapple with debt collection before filing a bankruptcy, certain lenders can garnish your wages and put you deeper into debt as it impacts your failing budget. A bankruptcy stay can protect your wages by preventing lenders from collecting any of your wages, including any money you might owe the Internal Revenue Service.
While an automatic bankruptcy stay can protect your remaining assets, there are a few exceptions to consider. Child support payments, pension loans and fines stemming from criminal prosecution are all debts that a stay typically does not halt. You may want to ask your bankruptcy lawyer about other circumstances that could affect your stay.
It may take up to 10 business days for the court to notify lenders about the stay. During this time, they may continue to contact you with demands for payment.