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What an automatic stay is and how it can keep debt collectors away

When a debtor files bankruptcy, a “legal shield,” called an automatic stay, goes into effect immediately. It serves to stay, or stop, all collection efforts in effect at the time of the bankruptcy filing. One aspect of the automatic stay is that while it is designed to protect debtors from collection efforts the moment a bankruptcy is filed, creditors are not instantly notified about it. Creditors are notified by mail to cease their collection efforts. While notifying creditors can take some time, the experienced bankruptcy lawyers at Morgan & Morgan know just how to handle the situation.
 
When a client meets with one of our experienced bankruptcy practitioners, we ask if a home foreclosure or sheriff’s sale of a home is imminent or whether a car repossession is being threatened. That way, we know to act quickly to help our clients protect the asset in question. In that situation, an emergency, abbreviated bankruptcy can be filed to trigger the automatic stay to freeze further collection efforts. A more complete bankruptcy petition will need to be filed within a short period of time, but the original automatic stay remains in effect.
 
The automatic stay remains in effect until the bankruptcy is discharged, meaning finalized. However, if, for some reason, a bankruptcy is dismissed or does not obtain a discharge, the automatic stay ends.
 
An automatic stay is one of the many benefits of filing bankruptcy, but it does have its limitations. When Congress revamped the U.S. Bankruptcy Code in 2005, it wanted to be sure the super powers of the automatic stay were not abused. So, if a debtor files a bankruptcy that got dismissed and they file for bankruptcy again within one year, the automatic stay will only last 30 days, not the entire time the bankruptcy is pending.
 
If you are seeking bankruptcy advice about the automatic stay or other aspects of this complex area of law, the experienced bankruptcy lawyers at Morgan & Morgan are here to help.

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