The Automatic Stay
One of the benefits of filing for bankruptcy is that, once your bankruptcy petition is filed, your creditors are temporarily prohibited from taking any further action to collect on your debts. This is known as the automatic stay. Once you have filed for bankruptcy, the automatic stay immediately protects your assets and stops your creditors from harassing you. The automatic stay stops home foreclosure, car repossession, wage garnishment and other types of action against a debtor’s property, including litigation. If a creditor continues collection efforts without court approval, that action will likely violate the automatic stay. If that happens, you may be entitled to damages against that creditor.
Like most rules, there are exceptions to the automatic stay. The following is a list of some of the proceedings that do not stop as a result of the automatic stay:
- Criminal Proceedings- If you are the subject of an existing criminal proceeding, the automatic stay will generally not stop that proceeding. Some courts, though, have found that if the criminal proceeding involves the collection of a debt, then the automatic stay remains intact and the matter will not proceed until the bankruptcy process is complete.
- Alimony/Support Payments
- Some, but not all, eviction actions where a judgment of possession was obtained before your bankruptcy filing
- Governmental police powers (you can still be arrested).
If you have a mortgage, the automatic stay applies to stop the bank or mortgage company from continuing the foreclosure process. In a Chapter 7 bankruptcy, the automatic stay temporarily stops the foreclosure process for at least 45 days. While you may not be able to permanently stay in your home, the stay will give you some breathing room to delay the foreclosure process so you may find a new home.
In a Chapter 13 bankruptcy, you may pay off your late mortgage payments, under the terms of a plan, which gives you up to 5 years to pay off certain debts. Properly structured repayment plans give you the ability to repay debts under a budget you can afford, saving you thousands in interest and penalties. As long as you stay current on your ongoing and past mortgage payments under the repayment plan, you should be able to keep your home.
Repossession of Your Car
Under both a Chapter 7 and Chapter 13 bankruptcy, the automatic stay prevents lenders from continuing any collection efforts on your car loan. However, lenders can receive relief from the automatic stay to repossess your vehicle. There are ways to fight this as a debtor. Many lenders would prefer to work out a new payment plan than repossess the car. If you can propose a payment plan that is acceptable to the lender, you may be able to keep your car. You may also be able to work out a deal with the Trustee appointed in your case to repurchase the car from the Trustee for its fair market price. Under either scenario, there are ways for you to keep your car if it is feasible.
Wage garnishment is the deduction of money from an individual’s income for the purpose of paying off debts that he or she owes. If your wages are being garnished, filing for bankruptcy can not only stop that process, but also help to return some of your previously garnished wages.
If you file for bankruptcy, the automatic stay will stop the wage garnishment process. It is a good idea to immediately notify your company’s accounting department if you file for bankruptcy in order to ensure that any garnishments are stayed.
If your debts are discharged in your bankruptcy case, creditors cannot resume collecting wage garnishments if the debt was included in the discharge. You may also be entitled to the return of your previously garnished wages if more than $600 was garnished in the 90 days right before your bankruptcy filing.