What Happens Immediately?
Immediately upon the filing of a bankruptcy petition with the court, the "Automatic Stay" is put in place. The purpose of the "Automatic Stay" is to stop all creditors from taking any action to collect on a debt. This means that all creditors must stop the following actions:
- Phone calls from creditors and collection agencies must stop
- Wage garnishments must stop
- Lawsuits must stop
- Repossessions must stop
- Foreclosure must stop
The second effect of filing bankruptcy is that the debtor no longer needs to pay debts that the debtor does not want to keep, such as credit card, medical and personal loan debts. When the debtor has debts which the debtor wishes to keep, such as a car loan or home, the treatment of these debts depends on which chapter the debtor files. In Chapter 7, the debtor must keep the payments current in order to keep the property secured by the loan. In Chapter 13, the debtor does not need to be current on the loan and is allowed to create a "Plan" to pay the past-due payments over the next 36-60 months. These payments generally start within 30 days of the date of filing the bankruptcy case.