One of the most widely spread falsehoods about bankruptcy is that it is only for financially irresponsible, incompetent individuals. On the contrary, it is an effective tool designed by the government to relieve individuals of overwhelming debt that may not be due to any fault of the debtor (health care bills, for instance).
The two forms of consumer bankruptcy, Chapter 7 and Chapter 13, can help people in debt get a fresh start on life through liquidation or repayment plans. As part of that, bankruptcy comes with a form of protection from debt collectors called an automatic stay.
What is the automatic stay?
When a person files for bankruptcy, an automatic stay goes into place that stops debt collectors from trying to collect their money. This means a freeze in the constant phone calls, overdue notices and other hassling attempts to collect the debts. It also halts foreclosures, repossessions, wage garnishments and even lawsuits. Creditors cannot contact the debtor at all and face legal consequences if they try.
Does the automatic stay cover everything?
The automatic stay does not apply to overdue child support payments, just like bankruptcy does not remove the obligation to pay child support. If the individual had a bankruptcy case pending within a year of filing for his or her current one, the protection only two days. The only way to get around this is for the filer to prove he or she filed the second one in good faith. Having two pending cases within the past year removes any protection.
Bankruptcy comes with an automatic stay in order to give people the time they need to get their financial affairs in order and start the next stage in their life without the pressure of creditors hounding them. It is a useful part of bankruptcy, but in certain cases, it does not apply.