When debtors start falling behind on their bills, bankruptcy may be the best option to stop harassing phone calls and other collection tactics. Before a debtor files for bankruptcy, he is protected from creditor abuses by federal law, but after he files for bankruptcy, bankruptcy laws provide even greater protection.
Implementing Automatic Stay
Federal bankruptcy laws give debtors the protection of an automatic stay, which temporarily halts creditor collection actions. This protection applies as soon as the debtor files his bankruptcy case, giving the debtor immediate relief so he can determine if he should sell certain property or how to reorganize his finances, depending on the type of bankruptcy case he files. The stay is literally automatic, and it goes into place immediately when the debtor files his bankruptcy case, so the debtor does not need to do anything special to put the stay into effect.
Protections of an Automatic Stay
The stay protects the debtor from nearly all collection actions, including lawsuits to collect on a debt, collection calls and garnishments. The automatic stay can even stop foreclosures and repossessions, putting them on hold until after the bankruptcy case concludes. While the stay is in place, creditors cannot attempt to collect on debts the debtor owes, even if the debts are legitimate and long past-due. However, automatic stays do not stop criminal prosecutions involving debts and do not stop collection of child support or alimony.
Removing an Automatic Stay
Creditors can ask the court for permission to continue collection efforts even while the debtor's bankruptcy case is ongoing by filing a motion for relief from stay. The bankruptcy court considers the creditor's reasons for asking for relief, along with the debtor's response to the creditor's motion, before deciding whether to lift the stay. For example, a lender may ask the court to lift the stay since the debtor is so far behind on his car loan payments that the lender wants to repossess the vehicle. If the court lifts the stay for a creditor, that creditor can continue his collection efforts as if the bankruptcy case was not in progress.
Fair Debt Collection Practices Act
Even before a debtor files for bankruptcy, the Fair Debt Collection Practices Act, a federal law, protects him from some creditor abuses. Under this law, debt collectors are not allowed to harass debtors with excessive phone calls, abusive language, or threats. Collectors also cannot tell others about the debtor's debts or contact the debtor at odd times of day or at the debtor's place of work. However, the law does not apply to all creditors or collectors. It generally only applies to debt collectors who collect debts on someone else's behalf or purchase the debt from another company.