In the early days of a bankruptcy process, a petitioner may need a stay to try to get the situation under control. A stay is a court order that limits creditors' actions while the case is pending. It is a powerful tool under the right circumstances, but you should understand what a stay can and can't accomplish.

What Is a Stay?

The purpose of a stay is to allow the petitioner and creditors time to deal with legal procedures while a case is underway. Normally, a judge will issue a court order once the court has agreed to consider the petition. The stay prevents creditors from pursuing collection or repossession actions, but it only applies during the period the case is under consideration.

Preventing Harassing Communications

Folks who've suffered many calls, emails, texts, letters, and direct messages from bill collectors understand what a pain it can be. When your bankruptcy lawyer files your case, the petition will include a request for an order to stop harassing communications.

If a creditor has a legally acceptable need to communicate with you, the judge will direct them to do so through the court. Subsequently, if the judge believes the creditor's communication is worth relaying, the court will send the message to your bankruptcy attorney who will give it to you.

However, it's rare a court will humor even this limited form of communication. Bankruptcy petitions tend to move quickly, usually wrapping up within a few weeks or months. For the most part, a judge will tell a creditor to just bring the issue up in court if it's that important. 

Pausing Repossessions and Foreclosures

If you're filing for protection under Chapter 7, you may need some time to figure out what you're going to do if a creditor repossesses your car or forecloses on your house. The stay doesn't stop those actions, but it does put them on pause.

Notably, there are cases where a judge may decide a loan for a car or house is so far underwater that it is effectively paid. This usually happens when an asset depreciates significantly in value and the judge determines the depreciation wipes out the remaining balance owed. You shouldn't assume a court will take this action, but your bankruptcy lawyer can ask. If the court doesn't grant the request, the creditors of secured items can take them once the case concludes.

Someone filing under Chapter 13 can still get a stay on repossession or foreclosure. However, they will have to either include the asset in their restructured payment plan or let the creditor take it.

Contact a bankruptcy attorney near you to learn more.