How Does The Automatic Stay Help Those Filing for Bankruptcy
Filing bankruptcy can be an intimidating decision. But, did you know that there are various tools that can protect you during the process? In fact, one of the most beneficial tools for those filing bankruptcy is the automatic stay. The automatic stay is a part of all bankruptcy cases, and it stops all collection actions you may be facing from creditors or debt collection agencies.
The automatic stay can be a powerful instruments for protecting them against a number of financial burdens. If you are facing eviction, repossession or foreclosure, losing utilities or benefits, or are having issues making
child support payments, the automatic stay may benefit you and your family in a time of financial crisis.
Below are a few ways the automatic stay law can help you when filing for bankruptcy.
- It may stop utility disconnections. If you have been unable to pay your utility bill, companies may threaten to disconnect crucial resources such as water, electricity, and gas. Thankfully, the automatic stay will postpone these disconnections for a minimum of 20 days.
- It may stop foreclosure.
In most cases, the automatic stay will postpone proceedings if your home mortgage is at risk of foreclosure. However, it is noted that a person consider Chapter 13 Bankruptcy if they want to keep their house during the bankruptcy process.
- It may stop eviction. In many cases, the automatic stay will prevent property owners from evicting tenants in improbable amounts of time. However, property owners may be able to find loopholes to evict you and your family sooner. While the automatic stay may be able to postpone the eviction for a few days or weeks, it is important to speak with an experienced bankruptcy attorney to discuss your situation immediately.
- May be able to stop collection of public benefits overpayments. If you received overpayments due to your public benefits, an agency would be entitled to collect these overpayments from your checks, typically.
However, the automatic stay law may be able to prevent these collections.
- May be able to stop wage garnishments. When filing for bankruptcy, the automatic stay law will disallow any collection agencies to take any part of your salary. However, this may exclude and wages that may be taken to satisfy court judgments.
The Automatic Stay: How it Stops Creditors in Bankruptcy
The automatic stay is what stops creditors from pursuing collections against a debtor when bankruptcy is filed. In most cases, it either stops or temporarily ceases collection activity which gives you more time to handle finances. The action can be powerful against those who are at risk of eviction, foreclosure , utility disconnection and it can even disrupt wage garnishment .
The automatic stay is like a road block to creditors and collection agencies. If you are facing a utility disconnection, it may keep your utility from being disconnected for a couple of weeks. If you are facing foreclosure, the stay delays proceedings temporarily. While the lender may eventually proceed, Chapter 13 bankruptcy gives homeowners a likely chance to keep their home under an agreed payment plan.
The automatic stay may temporarily halt collection for situations such as overpayment of public benefits and eviction. In some cases, a creditor may try to work their way around the stay by getting the judge to grant certain collection activity. Certain tax collection situations may see a temporary halt in collections and the stay usually prevents liens or property seizures from the IRS. If you owe back child or spousal support, the stay may not be as effective but you have the chance to get other debts discharged and work on getting support payments made.
The automatic stay has helped many debtors by giving them time to work out their situation with their legal representative. Questions and concerns should be reviewed with a qualified bankruptcy attorney.
Bankruptcy Debtor Beware Of Automatic Stay Violators
When a debtor files bankruptcy, the creditors to whom they owe money are supposed to stop trying to collect. But as you may have guessed, that’s not always what happens. Sometimes, the creditor in a bankruptcy case takes their chances and attempts to pry some money out of the debtor even after they have filed bankruptcy. Some debtors who don’t understand the bankruptcy process or who are so overwhelmed because they are going through the process without a bankruptcy attorney, end up making payments to a creditor.
This is unfortunate because sometimes the payments made by the debtor can really upset their already fragile financial condition. And even though the law says that creditors who violate the automatic stay should be punished, the punishment meted out against violators is mild or non-existent because debtors often don’t realize what happened and don’t file a complaint.
How to avoid the traps of bankruptcy automatic state violators:
- A debtor is not obligated to make any payments to any of their creditors once they file bankruptcy. Even if the creditor calls and makes threats against the debtor, they still are not required to make payments after their bankruptcy has been filed.
- The creditor cannot simply repossess any of your property without a court order after you have filed bankruptcy. This means that even if you failed to pay your mortgage, once you file bankruptcy, the mortgage lender must get permission from the bankruptcy court if they want to file foreclosure. Even then they may not be able to file foreclosure if you come up with a feasible plan to repay your delinquent mortgage and keep your house through bankruptcy.
- If a creditor violates the automatic stay after you file bankruptcy, you must inform them in writing that you have in fact filed bankruptcy and should not be contacted. You can tell them verbally; but also send a letter just in case you need to present this evidence to the bankruptcy court if they don’t cease with their illegal behavior. The bankruptcy court will look at the debtor’s due diligence to inform the creditor of their bankruptcy before they will be willing to grant any damages.
Can Creditors Avoid An Automatic Stay?
When a debtor files Chapter 7 or Chapter 13 bankruptcy , he/she will receive the protection of an automatic stay. The automatic stay prevents creditors from taking collection actions against the debtor in bankruptcy and also forbids the creditor from calling, writing, issuing a wage garnishment order, seizing the debtor’s bank account or assets, filing a lawsuit or filing foreclosure on the debtor’s home. However, there are circumstances where a creditor will seek relief from the automatic stay.
- A creditor will seek relief from an automatic stay in bankruptcy if the debtor does not have “sufficient” equity in the secured property or if the secured property has not been properly insured by the debtor. This most often happens in the case of vehicles and real estate property. For example, if you have a financed vehicle during bankruptcy and you fail to insure the vehicle, the creditor may seek relief from the automatic stay because of your lack of insurance on the vehicle.
- A creditor may seek relief from the automatic stay in bankruptcy if they believe that another court is more equipped to handle the legal issues in the case. This is most common when a divorce proceeding is taking place during bankruptcy.
- A creditor may seek relief from the automatic stay specifically in Chapter 13 bankruptcy before confirmation if they believe that they will not be given sufficient payment on a debt.
If a creditor is given relief from automatic stay, they will be able to continue their collections efforts against the debtor as if he/she never field bankruptcy. However, it’s important to understand that just because a creditor seeks relief from the automatic stay does not mean the bankruptcy judge will grant that relief. They must prove that relief from the automatic stay is warranted. If a creditor is seeking relief from the automatic stay during your bankruptcy case work with your bankruptcy attorney to challenge the creditor’s motion for relief.
Does the Automatic Stay in Bankruptcy Stop Student Loan Collections?
If you have student loan debt that is being pursued by the creditor when you file bankruptcy, collection efforts come to a halt due to the automatic stay. This also ceases collection attempts through bank and wage garnishments. This can give debtors time to figure out how to repay their loan obligations if they are unable to get them discharged.
The Brunner Test
It has been said that getting student loan debt eliminated or discharged in bankruptcy is impossible. There are qualifications determined through what is known as the Brunner Test to see if you qualify. There are debtors
who may actually meet qualifications but don’t bother to ask about them. It may be rare but it is possible, but you won’t know for sure unless you ask your attorney.
The Brunner Test looks at a few aspects such as your ability to pay, current financial situation and whether you have made good faith intentions toward making payments. You have to prove that making payments toward the debt is making things difficult for you when it comes to living needs.
When Does the Automatic Stay Go Into Effect?
The automatic stay in bankruptcy goes into effect immediately when your petition is filed. Creditors, including those you owe student loan payments to, should stop collection actions against you. As long as your case is pending they cannot continue to try and collect from you. If you are unable to get student loan debt discharged, after your case is completed you may still be responsible for the balance owed. Other unsecured debts may qualify for elimination making it easier for you to pay your student loans.
Have Any More Questions About Bankruptcy and Student Loans?
If you have any questions you would like answered regarding bankruptcy and student loans don’t hesitate to give us a call.
Bankruptcy Offers Limited Automatic Stay Protection For Co-Signers
Do you have debt that has been co-signed by a relative or friend? Well if you file for bankruptcy, there is some limited protection for that co-signer through the automatic stay; but it is only temporary. Debtors who file for Chapter 7 bankruptcy or Chapter 13 bankruptcy enjoy the full protection of the automatic stay during bankruptcy and cannot be pursued by creditors for the repayment of a debt that has been discharged in bankruptcy. However, if their debt was co-signed by someone else the creditor will have the power to pursue that co-signer for repayment after the bankruptcy case is closed or discharged and in some cases they may be able to pursue the co-signer for repayment while the bankruptcy process is ongoing.
If a debtor in Chapter 13 bankruptcy has a co-signed “consumer” debt then the creditor is temporarily prohibited from pursuing the other debtor for repayment of the co-signed debt. This bankruptcy law was implemented to prevent creditors from applying indirect pressure on the bankruptcy debtor. However, the reality is that this will only delay collection action against the co-signer. If the debtor’s Chapter 13 bankruptcy plan does not allow for the full repayment of the co-signed debt, the creditor may ask the bankruptcy court for permission to pursue the co-signer for repayment of the debt. Most likely that permission will be granted to the creditor. For debtors considering bankruptcy who have co-signed debt, please take the time to discuss your bankruptcy with the co-signer. It is best to be honest and up-front about your financial situation. Even if they get upset by the bankruptcy, you have a better chance of salvaging your relationship with the co-signer if you are honest and avoid allowing the ramifications of the bankruptcy to be a surprise.
Exceptions to an Automatic Stay
An automatic stay goes into effect the instant you file your bankruptcy petition. This may seem like a huge relief, finally those harassing phone calls will stop and you don’t have to worry about your possessions being repossessed or foreclosure, at least for a while. But there are some debts that aren’t subject to the automatic stay, so it’s best to know what these are before you’re shocked by their continued presence.
- Evictions. If your landlord has already started eviction proceedings it may be too late to prevent it with an automatic stay. In some situations you can stop the eviction but you need to speak with your bankruptcy attorney immediately, before any paperwork has been filed by the landlord.
- Criminal Prosecution. If you’ve committed a crime or are accused of it then an automatic stay can’t prevent you from going to trial and anything that follows.
- Retirement Plan Loans. If you took out a loan against an IRA then any payments that are being automatically deducted from your paycheck will still be deducted.
- Support payments. Whether its child support, alimony or any other court ordered support payments will continue after an automatic stay.
- Paternity and Divorce. An automatic stay will have no effect on any paternity tests or divorce proceedings. The only time a divorce may be held up by an automatic stay is if there is property that needs to be divided.
There may be other exceptions to the automatic stay that apply in your situation so your best bet is to speak with a bankruptcy attorney.
Bankruptcy Grants Automatic Stay Relief Because Repayment Plan Not Feasible
In a recent Chapter 13 bankruptcy plan, the bankruptcy trustee ruled that the creditor (movant) would be granted relief from the automatic stay because the debtors could not offer adequate protection.
On August 17, 2005, Michael E. Redden, Jr. executed a note, payable to Movant, in the original principal amount of $152,000 (the “Home Note”). The Home Note provided for monthly payments of $999.01 per month, with a balloon payment due on August 17, 2010. (Movant’s Exhibit 1).1 The Home Note is secured by a deed of trust covering a home located at Lot 2, Block 1, of Cannon Acres, a subdivision in Harris County, Texas. (Movant’s Exhibit 2).
On May 4, 2006, Michael E. Redden, Jr. executed a second note, payable to Movant, in the original principal amount of $32,000 (the “Lot Note”). The Lot Note provided for monthly payments of $392.66, with a balloon payment due on May 4, 2011. (Movant’s Exhibit 3).2 The Lot Note is secured by a deed of trust covering an undeveloped lot located at Lot 1, Block 1, of Cannon Acres, contiguous to the home securing the August 17, 2005 note. (Movant’s Exhibit 4).
What is adequate protection in bankruptcy? Basically adequate protection is when the debtor can protect the creditor’s interest in the property which secures a debt, either because they have equity or because they are making some type of payment. In this particular case the bankruptcy debtors’ property was inundated with various liens leaving no equity cushion and they were unable to have their repayment plan confirmed because the trustee did not think it was feasible. In the end, the bankruptcy trustee ruled that the creditor could receive relief from the automatic stay because they would not otherwise receive payment and there was no point in allowing the debtors to retain the property which secured the outstanding debt.
Failure To Record Assignment Prevents Automatic Stay Bankruptcy
In the recent Chapter 13 bankruptcy case of a debtor whose home was foreclosed on, the bankruptcy court declined to lift the automatic stay preventing the creditor from taking possession of the home.
US Bank National Association (“US Bank”), Trustee for the C-BASS Mortgage Loan Asset-Backed Certificates, Series 2006-CB2, nonjudicially foreclosed on the residence of Debtor Eleazar Salazar (“Salazar”), by exercising the power of sale under the deed of trust. At the time it foreclosed, US Bank was not the original beneficiary of record, and it had not recorded an assignment of the deed of trust conveying to it an interest in the deed of trust.
After the foreclosure, two lawsuits were filed in state court: Salazar filed to invalidate the foreclosure sale and to seek damages against US Bank and other parties, and US Bank filed to regain possession of the residence through an unlawful detainer action against Salazar. The unlawful detainer; suit was on the verge of trial when Salazar filed his chapter 13 bankruptcy case.
Ultimately the bankruptcy court ruled that it would be less damaging to both parties if the automatic stay remained in place because the foreclosure process was flawed due to the failure to record the assignment. The bankruptcy court decided to review the debtor’s Chapter 13 bankruptcy plan to see if it was feasible and if the debtor could provide adequate protection for the property while repaying the debt. If it is determined that the foreclosure was in fact illegal, the lender may be obliged to accept a Chapter 13 bankruptcy repayment plan despite their objections.
Automatic Stay Lifted Despite Debtors’ Arguments Over Lawsuit Location
In the business bankruptcy of Jim’s Maintenance & Sons, Inc. and Jim’s Commercial Cleaning Ltd., the bankruptcy court ruled to lift the automatic stay for Target Corporation, allowing the creditor to pursue lawsuits against the debtors in both Texas and Oklahoma. The debtors in the case argued that lifting the bankruptcy automatic stay for both lawsuits would unfairly burden them because they did not have an attorney willing to travel to Texas to represent them.
The details of the bankruptcy case:
In 2000, Target Corporation entered into contracts with Jim’s Maintenance & Son’s Inc. and Jim’s Commercial Cleaning Ltd. (collectively “Jim’s Maintenance” or “the debtors”) in which Jim’s Maintenance agreed to provide cleaning services for Target at certain stores. Target terminated its relationship with Jim’s Maintenance in May 2006. That same year, former employees of Jim’s Maintenance brought two separate lawsuits against the company and Target in the Southern District of Texas (“the Fuentes case”) and the Western District of Texas (“the Iztep case”). The former employees asserted that Jim’s Maintenance and Target were liable for failure to pay overtime and minimum wage in accordance with the Fair Labor Standards Act.
Target subsequently brought cross-claims against Jim’s Maintenance for breach of contract and other claims in both Texas cases. In May 2008, Jim’s Maintenance filed for bankruptcy protection and an automatic stay of all litigation against the debtors went into effect under 11 U.S.C. § 362(a). After filing for bankruptcy, Jim’s Maintenance filed a civil action against Target in state court in Oklahoma, which was later removed to federal court in the Western District of Oklahoma (“the Oklahoma litigation”). Target subsequently moved the bankruptcy court for relief from the automatic stay to allow it to continue litigating its cross-claims in the Texas cases and to allow it to file comparable counterclaims in the Oklahoma litigation. In February 2009, the bankruptcy court lifted the automatic stay.
The debtors appealed the bankruptcy court’s decision arguing that the Texas case should still fall under the automatic stay due to their inability to afford representation in the case. The bankruptcy court ruled against them saying that they will lift the automatic stay in both cases and that the debtors could move to have the Texas case moved to Oklahoma. The bankruptcy court also noted that the debtors never argued against the validity of lifting the automatic stay, only that the location of the second law suit would unduly burden them.
How a Bankruptcy Automatic Stay Works for You
When a debtor files for bankruptcy, the first form of relief they receive is an automatic stay. An automatic stay stops creditors in their tracks so that the debtor’s assets, including property and wages can be protected from seizure while the bankruptcy case proceeds.
Bankruptcy’s automatic stay prohibits creditors from calling a debtor’s house or work. The bankruptcy automatic stay also prohibits creditors and their attorney’s from sending the debtor letters; but most importantly, the automatic stay stops all lawsuits and wage garnishments against the debtor from proceeding. Even if a creditor has already won a judgment against a debtor, the creditor can no longer collect on the judgment after the bankruptcy automatic stay has been put in place. The creditor must also stop any wage garnishment or bank account seizure already in place against the debtor.
If the creditor fails to obey the bankruptcy automatic stay they may be fined or penalized by the bankruptcy court. Penalties could include money damages and attorney’s fees awarded to the debtor.
When to Call Allmand Law Firm, PLLC
Bankruptcy does not always have to be an intimidating process. In fact, for some, bankruptcy might be the best option to get out of a sticky situation. For this reason, it is important to speak with a skilled bankruptcy attorney
in Dallas to make sure your situation is looked at detail by detail. With tools such as the automatic stay, bankruptcy can be a helpful way to keep you and your family living in a comfortable situation.