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What is an automatic stay in bankruptcy?

On Behalf of | Sep 27, 2023 | Bankruptcy

Georgia residents and business owners will want to know what options are available to help them resolve debt. Some situations are more problematic than dire; for instance, a person might be struggling with credit card debt that is resolvable by adjusting spending habits. Another individual or business owner might receive a “Notice of Foreclosure” that places them at risk of losing their home or business. If you’re in the latter group, you’ll want to learn more about bankruptcy and how an automatic stay can help stop a foreclosure.

An automatic stay is an injunction imposed against certain creditors or groups who might otherwise take legal action against someone who owes them a debt. If you file for certain types of bankruptcy, this injunction (automatic stay) prohibits creditors from attempting to collect debt. This would include the lenders of your mortgage loan. If they have already initiated foreclosure, they would not be able to complete the process.

Exceptions to the automatic stay rules

In certain cases, creditors can file a motion for relief. If the judge on the case rules in the creditors’ favor, the court will lift the automatic stay stemming from your bankruptcy petition. This would enable the creditors to continue their attempts to collect a debt.

You would receive protection from compensatory judgment

Another benefit of an automatic stay is that it prevents someone from suing you for damages. An example of this would be if you were involved in a motor vehicle collision and someone files a personal injury claim against you. With an automatic stay in place during bankruptcy proceedings, you have protection against compensatory judgments.

Determine which type of bankruptcy fits your needs

To determine if an automatic stay will help you keep from losing your home or business, you must first determine which bankruptcy program fits your needs. Chapter 7 and Chapter 13 programs are both available to individuals and business owners. If you file under Chapter 7, your assets will likely go through liquidation, and the proceeds will pay off your debt. Chapter 13, on the other hand, is known as the wage earner’s bankruptcy. You must demonstrate proof of reliable income, which enables you to work out a restructured payment plan with your creditors.

Filing for bankruptcy can help restore financial solvency

Many Georgia residents who might benefit greatly from bankruptcy hesitate to file a petition because they are embarrassed about their financial problems. Many individuals and businesses have been able to use bankruptcy as a valuable financial tool to relieve debt and build back stronger. It never hurts to explore your options. You just might find the key to restoring financial stability.