When you file for bankruptcy in California or any other state, you’re generally entitled to an automatic stay. The automatic stay prohibits creditors from taking steps to collect on a debt incurred before you filed for bankruptcy protection. The stay usually applies whether you file for Chapter 7 or 13 protection.
Specific actions that are prevented by the stay
If a stay is in place, a creditor is not allowed to continue garnishing your wages. Creditors are also barred from engaging in a foreclosure or attempting to repossess your vehicle. Furthermore, it is generally not possible to freeze a bank account or make automated phone calls until the stay is lifted or a case is dismissed.
A stay could be lifted
Creditors can file motions to have automatic stays lifted. A judge will typically order that a preliminary hearing take place within 30 days of receiving the motion. Stays may be lifted in the event that you don’t have equity in a secured property such as a home.
A stay may also be lifted if you are filing for divorce at the same time that you are seeking bankruptcy protection. It is important to note that a creditor may be able to seek payment after a case has been discharged. For example, a student loan company could file a lawsuit once a case has been resolved.
Penalties can be applied if a stay is violated
If a creditor takes steps to collect on a debt while a stay is in place, they could face financial penalties. Other forms of relief may also be available such as the return of items that were improperly repossessed. Generally speaking, you must be able to show that the violation was willful and malicious in its intent.
Filing for bankruptcy may help to eliminate or reorganize your current debt balances. An attorney may further explain the potential benefits of an automatic stay or the other possible benefits of seeking protection from creditors.