The Bankruptcy Automatic Stay

By: Erick R. Bohm

How does filing for bankruptcy protect you from creditors? There’s a provision in the Bankruptcy Code called the Automatic Stay. After filing your case with the bankruptcy court, you are legally protected from garnishment, foreclosure, collections, lawsuits, etc. Just like everything else, there are a few exceptions to this, but we’ll cover that in more detail below.

What is the Bankruptcy Automatic Stay And How Does It Protect Me?

An automatic stay is just a fancy way of saying “stopped.” Now, this doesn’t mean creditors are stopped forever from collecting on the debts you owe them, but it does provide you an opportunity to get back in control of the situation you’re going through. In order for creditors to resume collection activities against you, creditors must get approval from the court to do so. In a Chapter 7 Bankruptcy, absent court approval, creditors cannot collect on the debts you owe them from the time you file your case until you receive your discharge (approximately four to six months). In a Chapter 13, creditors cannot collect on the debts you owe them, absent court approval, for either thirty-six or sixty months (depending on how your Chapter 13 is structured). So, by means of the automatic stay provision, creditors are temporarily stopped from collecting on the debts you owe them. Either way, any debts that are discharged through the bankruptcy are discharged forever.

Whether you file a Chapter 7 or a Chapter 13 Bankruptcy, you are protected from your creditors during the pendency of the proceeding. As many of our clients know, creditors can be ruthless. They are willing to break the law in an attempt to scare individuals into settling their debts. Here I will discuss how bankruptcy can benefit individuals and protect them from different forms of collection activities.

1. Stops Wage Garnishment

Are your wages being garnished or are you concerned they may be garnished soon? Well, bankruptcy can certainly help in preventing this from happening. Filing for bankruptcy immediately prevents creditors from collecting on debts through garnishment. For example, say your wages are being garnished by the federal government for taxes you owe. As soon as your case is filed with the court, the IRS can no longer garnish your wages. In fact, you may be able to recover some of the wages that have been garnished if certain conditions are met. If your wages are being garnished, and you want this to stop, contact us and we can discuss your options.

2. Stops Creditor Harassment

Are you sick and tired of receiving non-stop phone calls from creditors? Are you at the point where you open the mail, see you have something from a creditor, and throw the mail in the trash? If so, you’re not alone. Many of our clients are stressed from the anxiety that creditors can cause. Bankruptcy, through the automatic stay, prohibits creditors from collecting on debts after filing bankruptcy, in most cases. As soon as you file your case, you’re protected from your creditors. The harassing phone calls, emails, and letters all come to a stop. In fact, it is illegal for creditors to continue collection activity against you after filing your case unless they receive court approval to do so. If you hire us, we will make sure your rights are protected. In the event a creditor tries to collect from you after filing your case, we will reach out to the creditor and make sure they leave you alone.

3. Stops FOreclosure

Are you concerned your house is going to be foreclosed on? Have you already received notification from the bank they’re going to initiate a foreclosure? If so, bankruptcy can help. Once your case is filed, the automatic stay prevents banks from beginning, continuing, or completing a foreclosure. You are protected from the foreclosure of a home throughout your bankruptcy. Depending on the specific facts of your case, a Chapter 7 or Chapter 13 may be a good option for you. If you reach out to us and tell us the specific facts of your situation, our knowledgeable MN Bankruptcy Attorneys can give you options you need to hear.

4. Eliminates Judgments

If you’re facing a judgment or received notification of a lawsuit, give us a call. Depending on the circumstances, filing bankruptcy may give you protection. After filing your bankruptcy petition, you will be protected from the judgment and any accompanying lawsuits. If the debts associated with the bankruptcy are dischargeable, the obligations surrounding the judgment will go away. However, if a judgment has already been entered against you, we will need to have the judgment removed from your record after the bankruptcy is completed. The process of removing the judgment from your record is something we can help you with.

5. Prevents Repossession

Are you concerned about your vehicle, or other property, being repossessed? If you think your vehicle might be repossessed, bankruptcy can help. As soon as your case is filed with the bankruptcy court, the property you owe money on cannot be repossessed unless the creditor receives approval from the court. If a creditor does not receive approval from the court, your property cannot be repossessed until your bankruptcy is approved and you receive your discharge. Depending on the debt owed, repossession activities may resume after you receive your discharge. Give us a call and let us help. We’ll review the facts and let you know how repossession will factor into your situation.

What Are The Exceptions to the Bankruptcy Automatic Stay?

If you owe family support obligations, the automatic stay will not prevent collecting on these debts. Any proceedings in play at the time of filing bankruptcy, or after, for either child support or divorce continue and trump the automatic stay. Additionally, tax proceedings continue to survive the automatic stay. As mentioned earlier, the automatic stay will prevent garnishment for tax debts, but the taxing authority still has the right to continue certain actions in an attempt to collect on taxes you owe. Also, if you owe fines or restitution for criminal convictions, you will be required to pay those outside of the bankruptcy.

Can A Creditor Lift the Automatic Stay?

In most cases, you’re protected from creditors as soon as your case is filed with the bankruptcy court. However, even after your case is filed, creditors can still collect on debts if they get leave from the court. What does this mean? Leave from the court means “approval.” A creditor who wishes to collect on debts that are owed by a debtor after the debtor has filed for bankruptcy must file a motion with the court seeking to have the automatic stay lifted, as it pertains to the specific debt owed. The court will sometimes grant the creditors motion depending on the situation. If you owe money on a secured debt (ex: home or car loan) and you have stopped paying your bill for the secured debt, a creditor will likely file a motion to have the automatic stay lifted. Once the creditor files their motion, you will have an opportunity to object to the motion. If you object, there will then be a hearing with a judge as to whether or not the motion should be granted. If the motion is granted, the creditor will be entitled to resume collecting on the debt. By way of example, if a motion to lift the automatic stay is granted for a bank who holds the mortgage to your house, the bank will be allowed to initiate a foreclosure action against you. If you fear this may happen, give us a call and we can discuss your options.

Contact a MN Bankruptcy Attorney

The thought of filing for bankruptcy can be overwhelming. If you are concerned about what might happen next, give the MN Bankruptcy Attorneys at Life Back Law Firm a call. We will discuss your options and help take some of the stress away. At the end of the day, getting your life back is what matters most to us. If filing for bankruptcy is the best option for you, we will let you know. If you’re tired of having debt control your life, let us help you get your life back.