For most if not all people, bankruptcy should
be a measure of last resort. The financial costs of filing for bankruptcy and
the stain it can leave on one’s credit history are among the important concerns
that face the prospective petitioner. A rather valuable aspect of an automatic stay is that it takes effect right after the debtor files a
petition for bankruptcy. In fact,
the bankruptcy court with jurisdiction over a particular case will not even
require that a separate hearing be held for the judge to recognize a bankruptcy
stay order.
Upon receiving formal notice, though, it is
creditors who must take care to recognize the authority of an automatic stay,
as it mandates that they may not make any more demands of the debtor of a financial
nature. This includes making persistent calls, as
well as court-ordered wage garnishment and civil lawsuits filed by the creditor
to try to collect on its loan(s).
Thus, the inherent value of a bankruptcy
stay to the debtor is that it works quickly and, especially in incidences of reorganization
plans, gives individuals and businesses a chance to formulate their plans with
less distraction and more peace of mind than they otherwise would have.
Nonetheless, the protections
of automatic stay have their limits. For one, while it may prevent
lenders from filing suits to try to get money back on their investments, in the
event the debtor commits fraud or some other kind of crime, they still stand to
be litigated against in adversary proceedings. In addition, automatic stay does not
necessarily apply to all debts, meaning that certain collection actions may
continue even though others have stopped.
