Yes. Declaring bankruptcy is an excellent way to stop a creditor from collecting from you, but filing your bankruptcy petition the day before your lender intends to auction off your house will do nothing to prevent the sale. You’ll need to do more. Why? Filing for bankruptcy will stop a collection action only if your creditor knows you filed in the first place. Here’s how it works.
Although the court will send out a notice informing your creditors about the automatic stay (the order that prevents your creditors from collecting against you), it could take several days to a week before the creditor receives it. If you’re facing any of the following pressing problems, the notice might arrive too late:
- a foreclosure sale
- a utility shut-off date
- a car repossession
- a pending civil lawsuit, or
- a wage garnishment (your employer deducts money out of your paycheck).
In time-sensitive situations, such as the above, it’s best to tell the creditor that you filed for bankruptcy by drafting a fax or email explaining that the automatic stay is in effect. You’ll want to include your account information, as well as the bankruptcy case number and filing date. It’s also wise to prepare your letter ahead of time and to find out where you should send it. Finally, you’ll want to follow up with a telephone call to make sure that the intended party receives the communication.
(Find out more about the notification process by reading Who Lets My Creditors Know That I’ve Filed for Bankruptcy?)
Go to the main bankruptcy FAQ page.