Are You Still Protected When You Make Your Last Payment to the Trustee?
- The automatic stay exists to protect bankruptcy filers from collection attempts and legal threats of creditors during bankruptcy. An automatic stay places an injunction against creditors and lenders that prohibits them from threatening, beginning or continuing legal action against you until a judge lifts the stay. Furthermore, creditors and lenders cannot contact you in an attempt to collect debt at any time while an automatic stay is in effect.
- In most cases, the automatic stay remains in place for the duration of a bankruptcy case until it is closed. However, a judge may place a limit on the stay to 30 days or impose no automatic stay at all if you had other recent bankruptcy cases. Additionally, creditors may file a motion to lift the stay, and if granted, they may continue pursuing you for your debt or take legal action against you while your bankruptcy case is still open.
- Once you make your final payment to your trustee, the bankruptcy court will discharge your case so long as you met all the requirements for discharge as directed by the judge presiding over your case. Though the court lifts the automatic stay upon discharge of your bankruptcy case, the discharge itself frees you of outstanding obligations to your creditors and erases any outstanding debts you previously owed. Your creditors will no longer be allowed to sue you for any debt, as you are no longer legally responsible for paying it.
- Though an automatic stay and a bankruptcy discharge both prevent your creditors from suing you, garnishing your wages or seizing your assets to recover losses, neither the stay nor a discharge remove liens on property connected to a loan or debt. For example, you may wish to include your auto loan when you file for bankruptcy, which would ultimately alleviate you of your loan payment and balance. However, because your vehicle likely serves as collateral for your loan, your lender may still repossess the vehicle, but may not pursue you for negative equity.