Residents of Rockland County who are experiencing financial difficulties, especially from significant credit card debt, are often told that bankruptcy can protect them from creditors. While this statement is generally correct, the "how" of this protection is often a mystery for some people. For most individuals who file a petition in bankruptcy, the strongest protection is provided by the automatic stay, a court order that is issued automatically when a bankruptcy petition is filed.
Every person who files a bankruptcy petition must also provide a list of creditors, including addresses. Upon receiving the petition and ensuring that the filing fee has been paid, the clerk of bankruptcy court sends a copy of the automatic stay to each creditor. The stay is a court order directed to all creditors of the debtor, and it forbids each creditor from taking any action to collect debts owed to by the debtor.
The automatic stay may have many different effects. All garnishment proceedings must come to a halt. All proceedings to foreclose a mortgage or other lien must also stop. The automatic stay may also provide breathing space for past due utility payments. Eviction proceedings may also be halted by the stay if the landlord has not already obtained a judgment of eviction. For many people, the most important effect of the stay is to prevent credit card companies from attempting to collect past due balances. After the automatic stay is issued, credit card companies cannot send collection letters, make phone calls to the debtor or commence a collection action in court. Any collection lawsuits or other legal actions that are intended to collect a debt must also stop. The stay may also stop actions to foreclose mortgages on residential property.
The automatic stay does not last forever, and creditors are occasionally able to persuade the court to lift the stay. Anyone with a significant number of debts may want to get more information about their bankruptcy options.