What is the Automatic Stay in Bankruptcy?  How Can it Help Me?

When you file for bankruptcy relief, your creditors must stop trying to collect from you.  Creditors cannot continue to call you or send you collection letters.  They cannot sue you, or repossess your car.  They cannot garnish your wages, even if a garnishment order is already in effect.

The Bankruptcy Code protects you by force of the automatic stay provision.  With very limited exceptions, this "stay" prohibits all collection activity after you file for bankruptcy relief.  The automatic stay stops any lawsuit filed against you and almost any other action against you, your property and your paycheck.

The automatic stay stops all of the following emergencies:

Foreclosure:  If your home is in foreclosure, the automatic stay will stop the foreclosure action.  Chapter 13 is your best bankruptcy option to save your home from foreclosure.  Ordinarily, you can file a Chapter 13 bankruptcy case to save your home any time prior to the sale of your home.  However, even a Chapter 7 bankruptcy filing will temporarily halt foreclosure action in most cases.

Utility Shutoffs:  If your lights and gas have been disconnected by the utility company, once you file bankruptcy the automatic stay will force the utility company to reconnect your service.  If the utility company is threatening to shut off your lights and heat, filing bankruptcy will prevent the utility company from disconnecting you. Sometimes the utility company will require a small deposit within a reasonable time after you file for bankruptcy relief.  If you do not provide the deposit, they may be able to turn off your lights and heat after the bankruptcy filing.

Repossession:  The repo man cannot take your car while the automatic stay is in force.  The automatic stay prevents your creditors from taking your car. However, this is a short-term solution.  Ultimately, you must reaffirm your car loan or return the car in Chapter 7 bankruptcy.  Chapter 13 bankruptcy may save your car, but you must make all of your trustee payments or the car creditor can ask the judge to "lift the stay" so they can lawfully repossess your car.

Lawsuits/Garnishments:  Filing bankruptcy stops lawsuits and wage garnishments immediately.  The automatic stay protects your paycheck from your creditors.  You will take home a full paycheck and, if the debt is dischargeable, you will probably be able to eliminate that entire outstanding debt in bankruptcy.

SSI/Food Stamps/Public Benefit Overpayments:  If you receive public assistance and the agency mistakenly overpaid you, the agency can collect the overpayment.  The automatic stay stops the agency from collecting the overpayment.  The debt will be eliminated in bankruptcy unless the government agency demonstrates it resulted from fraud.

Tax Levies:  The automatic stay will stop the IRS from issuing a tax levy or seizing your property to satisfy delinquent tax debt. However, the IRS can still audit you, demand you file your tax returns, assess you a tax liability and demand you pay the assessment.

The automatic stay will not stop any of the following:

Criminal Proceedings:  The automatic stay will not stop a criminal action.  If you are charged with driving under the influence, filing bankruptcy will not stop the state from prosecuting you or from imposing fines and court costs.  If you've been charged with a crime, consult a criminal defense attorney in your area as soon as possible.  However, if a criminal action can be separated into criminal and debt liabilities, the creditor may be stayed from collecting on the underlying debt.

Support Actions:  The automatic stay will not stop a lawsuit against you seeking to establish paternity or to establish, modify, or collect child support or maintenance.

The automatic stay will remain in effect until:

You complete the bankruptcy and receive a discharge;

• The bankruptcy judge lifts the stay at the request of the creditor;
• The property you want to protect is no longer part of the bankruptcy estate.

There are limited circumstances in which the automatic stay does not come into play automatically when your bankruptcy case is filed, or requires a motion from your bankruptcy attorney to keep it in effect.  These circumstances generally apply to certain people who have recently filed one or more other bankruptcy cases.  A bankruptcy attorney in your area can tell you whether or not these limited exceptions apply in your case.

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Mortgage Foreclosures Increasing Across the Country

Mortgage foreclosures continue to crash down on Americans at an alarming rate. Banks are calling in their mortgage notes and if you fear that you'll lose your home, you're not alone. $330 billion in adjustable rate mortgages adjusted upward in 2006. By the end of 2007, more than three million homeowners will face dramatically increased mortgage payments.

If you're like most consumers, you may not know that bankruptcy may be able to help you save your home in the face of a looming foreclosure. Chapter 13 bankruptcy is a very powerful tool if you have fallen behind on your mortgage payments and want to save your home from foreclosure.

Mortgage Foreclosure and Chapter 13 Bankruptcy

Chapter 13 bankruptcy can stop foreclosures. In fact, stopping mortgage foreclosures is the driving force behind many Chapter 13 bankruptcies, and it can stop a mortgage foreclosure proceeding in its tracks. However, the Chapter 13 bankruptcy must be filed before the mortgage company sells your home. The bankruptcy filing gives homeowners the time they need to cure delinquent mortgage payments.

A Chapter 13 bankruptcy plan provides for the repayment of the mortgage arrears and other secured debts from future income rather than from the current sale of your assets. Under Chapter 13, the payments you make are fixed so that you can meet all your necessary living expenses first and then pay any surplus income to creditors. A consumer bankruptcy attorney can help you structure a repayment plan that works for you and your creditors.
Homeowners must make all mortgage payments that come due during the Chapter 13 plan. Your mortgage company cannot contact you in regard to your pre-filing mortgage arrears while you are in the Chapter 13 bankruptcy. However, if you fail to make your post-filing mortgage payments, the mortgage company can ask the bankruptcy court to lift the protection of the bankruptcy code and resume the foreclosure proceeding. The possibility of refinancing your mortgage after you have gotten back on track with your Chapter 13 plan is realistic for many consumers.

Mortgage Foreclosure and Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a liquidation bankruptcy. If you are facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure. As opposed to Chapter 13 bankruptcy, Chapter 7 will give you a fresh start, but will not provide you with the opportunity to repay your mortgage arrears over time. Chapter 7 bankruptcy is an option you might consider if you know that you will not be able to keep up your mortgage payments, and simply need some breathing room to make alternate plans and the ability to move forward without a deficiency judgment against you. If you find yourself unable to continue making your mortgage payments due to job loss or other life circumstance, and you want to surrender your home to the mortgage company, Chapter 7 bankruptcy can resolve your mortgage debt.

A local bankruptcy attorney can help you decide if Chapter 7 or Chapter 13 is appropriate for your situation.

Looking for a Solution Besides Bankruptcy?

Although Chapter 13 bankruptcy is a manageable, effective way for many people to stop foreclosure and get their mortgage payments back on track, bankruptcy isn’t the only way to stop foreclosure. For homeowners with significant equity, who are not more than 90 days past due, there may be other options.