As soon as a debtor files for either Chapter 7 or Chapter 13 bankruptcy something called the “automatic stay” immediately goes into effect. The “automatic stay” is the legal term for the requirement that all of a debtor’s creditors must stop all debt collection activities the instant a bankruptcy case is filed.
This means that as soon as a debtor files a bankruptcy, creditors must stop collecting on every debt. Collection activities that must be stopped include letters, phone calls, law suits, vehicle repossessions, sheriff sales and foreclosures. All garnishments must also stop immediately.
The Bankruptcy court sends all creditors notice of the bankruptcy about two weeks after the case is filed. This notice informs all creditors that a case has been filed and then they know to stop collection activities. Prior to the court mailing notice, the debtor or the debtor’s attorney can call and give creditors notice of a bankruptcy if there is a pressing reason to do so (like stopping a garnishment or a foreclosure sale). If a creditor calls a debtor before it has received notice of the bankruptcy filing from the court, the debtor can give the creditor the bankruptcy case number and the creditor is required by law to stop calling.
If a creditor continues to engage in collections activities against the debtor after that creditor has received notice, then the creditor is in violation of bankruptcy laws. The debtor can file a motion with the court asking the judge to award him or her damages (usually a money judgment) and the Court can sanction the creditor. Most creditors know not to violate bankruptcy laws and will stop collecting as soon as notice is received.
Sometimes secured creditors who are not being provided for in a Chapter 13 repayment plan will ask the court to allow them to continue collection activities (such as a foreclosure or a repossession). In order to accomplish this, the secured creditor files a motion seeking “relief from the automatic stay.” If this motion is granted then this particular secured debt will be taken out of bankruptcy protection and the creditor can proceed with collection activities.