What Does Bankruptcy Protection Mean?
When you read a press release about a company or individual filing for bankruptcy, it is common to see the phrase "... has declared bankruptcy and is reorganizing under bankruptcy protection" or "... has filed for Chapter 7 bankruptcy protection". The term Bankruptcy Protection is used because a bankruptcy filing in a court of law stops all collections activity and legal proceedings regarding debt and financial matters. All bankruptcy filings involving Chapter 7 and Chapter 13 will place an Automatic Stay on the bankruptcy estate.
The automatic stay stops the commencement, enforcement or appeal of actions and judgments, judicial or administrative, against a debtor for the collection of a claim made before the filing of the bankruptcy request. The automatic stay additionally prohibits collection actions and proceedings directed toward property of the bankruptcy estate. What does this mean for you? Essentially, a bankruptcy filing applies an automatic stay that will not permit your creditors to proceed with a judgement to collect their debts from your accounts or income. When you are under bankruptcy protection, all of your assets are protected until the bankruptcy is over. It is a common misunderstanding that if you declare bankruptcy, you will lose everything you own. It is more likely that your assets will be protected under exemptions in the bankruptcy code that allow you to retain things you need to live. Without bankruptcy protection, your assets may be in danger of being lost to your lenders through lawsuits and judgements. A court of law does not examine your circumstance before a judgement is determined. You can stop the entire process by letting the courts know that you do not have the resources to pay all your debts. Filing a bankruptcy is the most effective way to protect your assets and let the courts know that you need to protect the things you own and can not pay the debts you presently owe.