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How Does Bankruptcy Stop Collection Activity?

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How Does Bankruptcy Stop Collection Activity?

If you’re buried under the weight of overwhelming debt, the incessant calls from creditors can be like a relentless, unyielding storm. Bankruptcy, however, is the calm in that storm. Here, the Whitten & Whitten team helps you discover how bankruptcy can act as a cease-and-desist order to the collection activity causing undue stress.

Understanding Bankruptcy as a Defensive Financial Maneuver

For most, the word ‘bankruptcy’ carries a stigma, but in truth, it is a shield that the law has put in place to protect you in times of financial vulnerability.

Bankruptcy is a legal proceeding in which a person who can no longer pay their debts can seek relief from their creditors. The underlying principle is to offer a fresh start to the individual while treating creditors fairly.

There are two common types of bankruptcy:
  • Chapter 7: Commonly referred to as ‘straight bankruptcy,’ Chapter 7 entails the sale of a debtor’s non-exempt property, and the proceeds are used to repay debts. However, most Chapter 7 bankruptcies are considered ‘no-asset’ cases, where no property is surrendered.
  • Chapter 13 allows debtors to keep their property and pay back all or a portion of their debts over a three—to five-year period through a court-approved reorganization plan.

Once your bankruptcy is filed, an automatic stay is issued, an injunction that stops actions by creditors to collect debts from a debtor.

What Exactly Will The
Automatic Stay Do?
Stop Mortgage Foreclosure

The automatic stay will stop any pending mortgage foreclosure proceedings. If you’re behind on your mortgage payments and facing foreclosure, the automatic stay will provide temporary relief and time to catch up on the overdue amounts.

Stop Vehicle Repossession

If your car was recently repossessed, filing for bankruptcy can help you regain it. The automatic stay will keep the creditor from selling your vehicle and allow you to catch up on missed payments.

Stop Wage Garnishment

Wage garnishments can be crippling for individuals already struggling with debt. The automatic stay stops wage garnishment, protecting your hard-earned income from being taken away by creditors.

Stop a Bank Levy

A bank levy allows creditors to take funds from your bank account to repay debts. With an automatic stay in place, this collection activity is halted, giving you time to reorganize your finances.

Stop Creditor Harassment

One of the most significant benefits of bankruptcy is that it ends creditor harassment. The automatic stay prevents creditors from contacting you and demanding payment, providing much-needed relief from the constant stress of collection activity.

Exceptions to the Automatic Stay

It’s essential to note that the automatic stay does not stop all collection activities. Some exceptions include the following:

  • Criminal Proceedings: Bankruptcy will not end criminal proceedings, including lawsuits or investigations for fraud or embezzlement.
  • Child Support and Alimony: The automatic stay does not stop child support or alimony payments. These debts must still be paid during and after bankruptcy.
  • Tax Audits: Filing for bankruptcy will not stop an audit or the collection of tax debts by the IRS.

Discussing your situation with a bankruptcy attorney is crucial to determine if any exceptions may apply in your case. However, for most individuals struggling with debt, bankruptcy provides an effective solution to stop collection activity and regain control over their financial future.

Seek Professional Legal Help Today

If you’re struggling with overwhelming debt and facing relentless collection activity, it’s time to take action. Our firm has years of experience navigating complex bankruptcy proceedings and helping individuals regain control of their finances. Contact Whitten & Whitten today for a consultation and take the first step towards a more stable financial future. Together, we can overcome any challenge.

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