The moment that a petition for bankruptcy is filed, U.S. Bankruptcy Code imposes something called an automatic stay. The automatic stay will generally prevent the enforcement, commencement, or appeal of actions and judgments against a debtor from the creditors they owe money to who are trying to collect these debts incurred prior to the bankruptcy petition. The automatic stay also protects property of the bankruptcy estate itself from collection actions and proceedings.

If a creditor violates the automatic stay are voided out. Any violation of the stay may cause the violating party to incur damages for the violation. But, like every complicated law, there are exceptions. A creditor may be permitted to take their collateral if they obtain permission from the court first. They’ll get this by filing a motion for relief from the automatic stay.

After a petition is filed, the court will grant the motion or provide security to the creditor, which ensures that the value of their collateral won’t decrease during the stay. Without the protection of the automatic stay creditors could hypothetically race to the courthouse in order to improve their positions against a debtor. If this happened, and let’s say that a debtor’s business was facing just a temporary crunch, it might not survive a “run” by creditors when their business could otherwise be salvaged. A run may also result in waste and it might be unfair to similar creditors that are owed money too.

There are three kinds of avoidance actions, and all of these try to cut down on the risk of the legal system encouraging the downfall of a debtor who is financially unstable and who hasn’t declared bankruptcy yet. The bankruptcy system will usually reward creditors who continue extending financing to debtors and will discourage creditors from ramping up their debt collection efforts.

Even though these rules seem simple, a few exceptions exist in each category of avoidance action.

Rapid Recovery Solution is a national collection agency.

In the last article I spoke about seemingly disreputable debt consolidation schemes that you should be aware of. Read on to find out more about these scams….

Meanwhile, your creditors are going without being paid. Unluckily, while you are collecting that payment, you aren’t paying your bills and you may be sinking lower and lower into debt.Instead of taking this gamble check out a nonprofit credit counseling firm that may charge you only twenty dollars, if anything. Instead of billing the debtor, these counselors will typically get what is called a fair share percentage payment from your creditors after you have been paid.

Finally, and most importantly, DON’T invest your trust in the debt consolidation counselor who tells you that “We will handle everything. You should cease all communication with your creditors.” Even though the fact that the idea of not speaking to creditors and ignoring their mail sounds like a real load off of your back, ultimately, it is your debt and your credit score at hand. Never send in a change of address form directing all creditor mail to a debt settlement company.

It is key to remember that the creditor is the one with whom you signed your contractual agreement. When all of your statements are being sent to the debt settlement company, you relinquish that control. You do not know how much in late fees and interest are being tacked on. You also will not know if your debt has been transferred into collections.

A few final words of wisdom. If you think you need debt settlement, try debt management first. Get in touch with your creditors and request reduced interest, suspended payment or any other payment terms that may suit your financial situation more favorably. Although it may seem like a long shot, or a pain, it is always very important if you are about to miss a payment to call your creditor and say “Listen, I can’t make this month’s payment. I’d like to work something out with you.

Rapid Recovery Solution is a third party debt collection company.