Bankruptcy Automatic StayThe
Power of Bankruptcy's Automatic Stay: After you File,
the Law Offers Potent Legal Protection Against Bill Collectors. When you file for bankruptcy, something called the automatic
stay immediately stops any lawsuit filed against you and virtually
all actions against your property by a creditor, collection
agency or government entity. Especially if you are at risk
of being evicted or foreclosed on, being found in contempt
for failure to pay child support or losing such basic resources
as utility services, welfare or unemployment benefits, your
driver's license or your job (because of a raft of wage garnishments),
the automatic stay may provide a powerful reason for filing
for bankruptcy.
Here is how the automatic stay affects some
common emergencies:
Utility disconnections. If you're behind on a utility bill
and the company is threatening to disconnect your water,
electric, gas or telephone service, the automatic stay will
prevent the
disconnection for at least 20 days. Bankruptcy will probably
discharge the past due debts for utility service. Although
the amount of a utility bill itself rarely justifies a bankruptcy
filing, preventing electrical service cutoff in January in
New England might be justification enough.
Foreclosure. If your home mortgage is being
foreclosed on, the automatic stay temporarily stops the proceedings,
but
the creditor will often be able to proceed with the foreclosure
sooner or later. If you are facing foreclosure, Chapter 13
bankruptcy is usually a better remedy than Chapter 7 bankruptcy,
if you want to keep your house.
Eviction. If you are being evicted from
your home, the automatic stay can usually buy you a few days
or a few weeks. But if
the landlord asks the court to lift the stay and let the
eviction proceed -- which landlords usually do -- the court
will probably
agree, reasoning that eviction won't affect the bankruptcy.
Despite the attractiveness of even a temporary delay, it
is seldom a good idea to file for bankruptcy solely because
you're
being evicted. You'll be better off looking for a new place
to live or fighting the eviction in state court, if you have
a defense.
Public benefit overpayments. If you receive
public benefits and were overpaid, normally the agency is
entitled to collect
the overpayment out of your future checks. The automatic
stay prevents this collection; furthermore, the debt (the
overpayment
you owe) is dischargeable unless the agency convinces the
court it resulted from fraud on your part. Whether or not
the threatened
collection of an overpayment justifies bankruptcy depends
on how severely you'll be affected by the proposed reduction
in
benefits.
Loss of driver's license because of liability for
damages. In some states, your driver's license may
be suspended until you pay a court judgment for damages resulting
from an automobile
accident. The automatic stay can prevent this suspension
if it hasn't already occurred. If you are absolutely dependent
on your ability to drive for your livelihood and family support,
keeping your driver's license can be a powerful reason to
file
for bankruptcy.
Multiple wage garnishments. Although no
more than 25% of your wages may be taken to satisfy court
judgments (up to
50% for
child support and alimony), many people file for bankruptcy
if more than one wage garnishment is threatened. For some
people, any loss of income is devastating; also, some employers
get
angry at the expense and hassle of facilitating a succession
of garnishments and take it out on their employees. Although
federal law prohibits you from being fired for one garnishment,
an employer can fire you for multiple garnishments. Filing
for bankruptcy stops garnishments dead in their tracks. Not
only will you take home a full salary, but you also may be
able to discharge the debt in bankruptcy.
If the primary reason
you are filing is to get the benefit of the automatic stay,
you don't need to file all of your
papers at once; you can file just the two-page petition
and a mailing
list of your creditors. If you don't file the rest of your
papers within 15 days, however, the case will be dismissed.
Usually,
the only way for a creditor to get around the automatic stay
is to ask the bankruptcy court to remove
("lift")
it if it is not serving its intended purpose. For example,
say you file for bankruptcy the day before your house is
to be sold in foreclosure. You have no equity in the house,
can't
pay your mortgage arrears and have no way of keeping the
property. The foreclosing creditor is apt to run to court
soon after
you file to ask for permission to proceed with the foreclosure
-- and that permission is likely to be granted.
In a few instances, the automatic stay won't help you.
Certain Tax Proceedings. The automatic
stay stops the IRS from issuing a tax lien or seizing
property. However, the
IRS can
audit you, issue a tax deficiency notice, demand a
tax return
(which often leads to an audit), issue a tax assessment
or demand payment of such an assessment.
Support Actions. A lawsuit against
you seeking to establish paternity or to establish,
modify
or collect
child support
or alimony isn't stopped by your filing for bankruptcy.
Administrative Freezes. If you file
for bankruptcy owing money on a bank loan, and
you also have
a checking account
with that
bank, the automatic stay prohibits the bank from
removing money from your checking account to cover
what's owed.
The bank can,
however, freeze money in the checking account to
cover the amount of your default -- at least until
the bankruptcy
court
determines what will happen to the debt. Freezing
money means that you have no access to it.
Criminal Proceedings. A criminal
proceeding that can be broken down into criminal
and debt components
will be divided, and
the criminal component is not affected by the
automatic stay. For example, if you were convicted of writing
a bad check,
sentenced to community service and ordered to
pay
a fine, your obligation to do community service
won't be stopped
by your
filing for bankruptcy.
Evictions (California Only). A
California law allows a landlord who has sued
for eviction and
won a judgment for possession
(but not a money judgment for back rent) to
let the marshal or sheriff evict even if you file
for bankruptcy. TOP OF THE PAGE
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