As soon as you file bankruptcy, an “Automatic Stay” goes into effect and stops all collection activity against you. This happens automatically the second your bankruptcy is filed. All creditors must stop trying to collect from you. They must stop doing anything to get money from you; this includes making calls, sending letters, and filing lawsuits. An automatic stay will also stop foreclosures, repossessions and sales of property from moving forward. Now, if you don’t pay your house notes the mortgage company would have the right to start the foreclosure up again after your bankruptcy case is finished.
There are some important exceptions to the automatic stay. It may not give you protection from some types of domestic support actions and it will not protect you from criminal charges made against you.
The automatic stay is temporary for secured creditors. They must get permission from the court before taking any action. Bankruptcy does not allow you to keep property that is security for a loan without making payments on the loan. You don’t get anything for free. If you don’t pay, a secured creditor may get court permission to seize and sell the property.
In Chapter 7 bankruptcy cases, the automatic stay ends as soon as the bankruptcy case is closed. Secured creditors can then proceed with a foreclosure or repossession if you are still behind on payments.
If your largest debts are vehicles or a mortgage, and you are behind, you may be better off filing a Chapter 13 bankruptcy case because the Chapter 13 will allow you to pay off the past-due secured debt over a longer period of time and you remain under the protection of the automatic stay.
In Chapter 13 cases the automatic stay also protects people who are “co-signers” on your debts. Co-signers, or co-debtors, are people who owe the same debt as you do. They have guaranteed the debt for you. They are also protected by your bankruptcy case and creditors cannot call or harass them.