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The automatic stay in bankruptcy - how it helps debtors

People in Vancouver who are having financial difficulty often look to the United States Bankruptcy Code for help in getting back on their feet. One of the most powerful remedies provided by the Bankruptcy Code is the "automatic stay," a provision that gives instant - albeit temporary - relief from the pressure of creditors trying to collect on bills.

The automatic stay is an order that issues automatically from the court in which the bankruptcy petition is filed. Every debtor who files a petition for bankruptcy protection, whether under Chapter 7 or Chapter 13, is required to provide the court with a list of the names and addresses of all creditors to whom the debtor owes money. The filing of the petition generates the stay without any action by the court or the debtor. When the stay issues, the clerk of bankruptcy court sends a notice to each of the creditors listed by the debtor.

Once the stay issues, no creditor may pursue any kind of collection activity on debts that arose prior to the filing of the petition. The automatic stay prohibits commencement of any lawsuit or administrative proceeding that could have been started before the bankruptcy petition was filed. The stay also prevents creation of liens against both real and personal property. Perhaps most importantly for most filers, the automatic stay stops all forms of collection activity, including phone calls and letters. An important exception to the automatic stay are child support payments - the obligation to make the payments continues without being affected by the stay.

The automatic stay provides important breathing room for the debtor to gather financial information and prepare a plan for either paying the debts over time under Chapter 13 or discharging debts under Chapter 7. Anyone who is suffering under an unmanageable debt burden may want to get more information about the effect of the automatic stay and the consequences of filing a petition under either Chapter 7 or Chapter 13.

Source: Legal Information Institute, 11 U.S.C. ยง362, accessed on Oct. 10, 2017

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