While there are many reasons to consider personal bankruptcy, one of the benefits that some people don’t think about is the protection from collection lawsuits that it provides.
The Bankruptcy Code provides that the second your attorney files your bankruptcy petition, the automatic stay kicks in. The automatic stay is a protective order that requires collectors to stop all collection efforts, including lawsuits. What this mean is that if you have been served with a lawsuit or a trial date for a collection lawsuit has been set, the attorneys for the creditor or collection agency cannot move forward.
It also means that they have to stop any garnishments that are in place or that are about to kick in.
What’s important to remember is that the protective order doesn’t kick in until the case is actually filed. Simply paying your attorney her fee isn’t enough. This is an important distinction, since it isn’t until your petition is filed that creditors have to stop trying to collect.
You also need to know that if you have filed bankruptcy before in the last 180 days or in certain other circumstances, the automatic stay may not kick in or may only last a certain length of time.
Finally, a creditor can ask the bankruptcy court to “lift” the protective order so that it can move forward with its lawsuit. This will usually happen with a home lender who is in the process of foreclosing, or a landlord may want to move forward with an eviction.
If your collection lawsuit has been set for trial, you should contact the creditor’s attorney or the court as soon as possible after your bankruptcy petition is filed to make sure that the trial doesn’t not go forward.
If you have been served with a collection lawsuit and are unable to pay, you should consider talking with a Colorado bankruptcy attorney right away.