How Does Filing For Bankruptcy Stop My Creditors?

As soon as you file for Bankruptcy an automatic stay goes into effect. This means that your creditors cannot engage in any activities for purposes of collecting a debt. They can’t call you, they can’t write you, they can’t sue you, and they can’t garnish you. The automatic stay will have no effect on a criminal prosecution, but it will stop a civil lawsuit. There is an exception you want to watch out for before you file for bankruptcy, and it has to do with credit unions.

If you owe money to a credit union and you have funds on deposit at that credit union, when you file for bankruptcy the credit union can pay itself out of the funds you have on deposit. This is what is known as an “offset.” The automatic stay will not stop this from happening. For example, you owe $1,000 to a credit union, and you have $500 in your account at that credit union. You file for bankruptcy, and the credit union takes your $500. For more information on how to keep that from happening, see my article entitled, “What to Do If You Owe Money to a Credit Union.”

Because creditors cannot collect, the automatic stay acts as a forbearance of sorts on student loans. This is particularly significant in the filing of a Chapter 13 bankruptcy which runs for three to five years. For an explanation of Chapter 13 Bankruptcy, see my article entitled, “The difference Between Chapter 7 and Chapter 13 Bankruptcy, and Which Chapter is Right For You.”

The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.

By: Michael Benkstein, Esq.

Managing Attorney, Bankruptcy Department

The Law Offices of Joumana Kayrouz, PLLC

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