When you file a bankruptcy, ALL COLLECTION ACTIONS STOP! A collector violates the law if they continue to call you or continue collection action after receiving notification of your bankruptcy filing. One of the most important benefits of filing for bankruptcy is the Automatic Stay. The “Automatic Stay” is an injunction that immediately goes into effect upon the filing of a bankruptcy case and stops all debt collection by creditors, with limited exceptions. In real world terms, that means that collection actions against you or your property immediately cease.
Actions that typically cease upon filing include:
- Garnishments (through wages or bank accounts)
- Foreclosure Actions
- Collection Calls
- Collection Letters
- Student Loan Collection
- Tax Levies and Tax Garnishments
- Payday Loan Collection
As long as the automatic stay is in effect, creditors cannot initiate or continue lawsuits, wage garnishments, or even call you on the phone to demand payment.*
There are some important exceptions to the “Automatic Stay” as it pertains to debt collection. Those exceptions include the following:
- On-Going Child Support or Spousal Support
- Driver’s License Suspension Due to Un-Paid Traffic Violations**
- Occupational or Professional License
- Seizure of a Tax Refund in Some Circumstances
In situations where child or spousal support is at issue, the person owed ongoing support can continue collecting it. If there is back support owed, then in spite of a Chapter 7 filing, the person who is owed the support can in most cases start or continue collecting it.
This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.
Taxing authorities can start or finish a tax audit, can send you a notice that you owe taxes, can demand you to file your tax returns, can assess your taxes and demand you to pay them, and in some situations can even file tax liens against you and your property.
* (Complications apply when a debtor has had a prior dismissed case in the past 12 months, or if certain other conditions are met. If this is the case, please tell us and will make sure to file the motion you need to get the court to impose the stay.)
** Drivers’ Licenses that are suspended can be reinstated upon the filing of a Chapter 13 Plan that includes payment of the traffic violations.