The “Automatic Stay”
How a Washington State bankruptcy protects you:
How does a Washington bankruptcy protect my family and I?
What is an “automatic stay” in a WA State bankruptcy?
Talk to a Washington bankruptcy lawyer now.
What happens to my creditors when I retain an attorney and file for bankruptcy?
Bankruptcy helps people who have accumulated so much debt, it would be oppressive to expect them to pay it all back with the income they have. It is also designed to put creditors on an even playing field, allowing them to share evenly if you can pay only part of your debt through bankruptcy.
Without bankruptcy, creditors would keep competing with each other to collect. If all your creditors sued you and got a judgment of the debt, they would line up to take turns garnishing your wages or bank account or by taking equity out of your home.
The second you file bankruptcy, all creditors must stop trying to collect from you. The bankruptcy filing triggers and “automatic stay” of all collection activity, including garnishments, lawsuits, phone call, foreclosures, repossessions and other attempts to collect a debt.
This gives the bankruptcy court a chance to sort through your case to see if you can pay anything, either by liquidating assets in a Chapter7 or through monthly payments in a Chapter 13. If there is money available, your unsecured creditors (creditors whose debts are not backed up by property) share the money on a pro rata basis (the receive a percentage of the money based on the percentage their debt is compared to all your debt.)
Secured creditors, such as mortgages or car loans, retain their rights to the collateral so if they don’t receive payments, they can collect the collateral. In some cases, you can pay a secured creditor only enough money to cover the value of the collateral and discharge the rest of the loan. You should talk to a lawyer to see if this process, knows as “cramming down” would work in your situation.
You don’t receive the benefit of the “automatic stay” until you actually file a case. If you hire us to help you with your bankruptcy, we can help keep creditors off your back while you get ready to file your case. We will confirm with your creditors that you are our client and we will be filing a bankruptcy soon. Many will stop calling you.
Creditors are less likely to take further action, such as hiring a lawyer to sue you, if they know they will have to stop their efforts after investing in the costly process of bill collecting.
After your bankruptcy, any debt that is not paid through the bankruptcy process is “discharged” (unless it falls under one of the exceptions to discharge, such as back taxes, student loans and child support. The discharge is an injunction – a court order that permanently prohibits creditors from trying to collect from you. If creditors violate the injunction, they can be sued. This means that a creditor simply does not get paid.
Creditors always assume that some of the loans they make will never be paid back. The interest they charge is set up to cover these expected losses. Most people hate the idea of breaking a promise and not paying a loan back, but if that is simply unrealistic in your situation, bankruptcy at least puts all the creditors on notice that the loan will never be paid back and they can concentrate their efforts elsewhere.
It also allows them to share payments fairly if there is any money available from your property or income, depending on whether you are doing a Chapter 7 or a Chapter 13.
