How Does Bankruptcy Stop Creditors?

The filing of a bankruptcy proceeding creates what is called an “automatic stay” which is a restraining order which prevents your creditors from continuing to contact you, either by phone or mail, and prevents them from suing you, or continuing a lawsuit against you that was filed before your filed bankruptcy.  The automatic stay also protects you from the filing of tax liens or collection by taxing agencies while you are in the bankruptcy.  (However, you should be cautioned that many taxes will survive your bankruptcy discharge depending upon how old those taxes are).

If you are behind on your mortgage payments and want to try to keep your house, the filing of bankruptcy will also prevent your lender from continuing foreclosure proceedings while you are in the bankruptcy proceeding.  In chapter 13 bankruptcies, you may be able to catch up on missed payments over as long as 5 years while you continue to make ongoing mortgage payments.  Similarly, in chapter 13, you can repay nondischargeable tax obligations over as long a period as 5 years, without the incurrence of further interest and penalties while you are in the bankruptcy proceeding.

In certain circumstances, chapter 13 may also allow you to “strip down” or remove a second trust deed on your residence when the value of the property when you file bankruptcy is less than the amount that you owe the senior lender.

All of these issues can be complicated and each situation is different.  For that reason you need to be well represented when you file bankruptcy.