Often, it is not the debt itself that drives someone to file for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, but it is the actions of the creditors. Creditors have many different ways to try to collect a debt, such as repeated telephone calls to the debtor’s house or work, letters from collection agencies and attorneys, lawsuits, wage garnishment, and other collection activities.
The debtor has only one tool available to stop the creditors. That tool arises as a result of filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. It is called “automatic stay” and arises under 11 U.S.C. §362. The automatic stay will stop all collection activities by a creditor to recover a debt. The creditor will not be able to call the debtor’s home or place of work, send letters, commence or continue a lawsuit, or enforce a judgment. It will prevent any garnishment and will stop any garnishment already in place. It will also stop any pending foreclosure. It will stop all collection activities and will require all creditors to resolve their claims in the bankruptcy court. If you file Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, the automatic stay will prevent the utility company from shutting off your service. The automatic stay will even stop contempt proceedings in the divorce case that relate to the nonpayment of financial obligations.
Once the automatic stay is in place, in order to take any further action, the creditor will have to file a motion in the bankruptcy court seeking to lift the stay. Most of the motions to lift the automatic stay involve cars and houses. A typical creditor in Chapter 7 may just be seeking to enforce its state court rights against the assets, especially if the debtor is surrendering the asset.
In Chapter 13 Bankruptcy, motions to lift automatic stay are usually filed by secured creditors when they believe that they aren’t getting paid sufficient money before the plan is confirmed. The most common motions to lift the stay in a Chapter13 are filed after confirmation of the plan, usually, when the debtor fails to make the required payments.
Once imposed, an automatic stay requiring a stop to almost all debt collection activity against the debtor and his property remains in effect until the earliest of the following events:
1. The case is closed;
2. The case is dismissed;
3. Or the debtor is granted or denied a discharge.
After the automatic stay is terminated, either by operation of law or special order, it is important to remember that property exempted in bankruptcy generally remains protected from pre-petition debts, even if these debts were held nondischargeable in the case.
The Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) which went into effect on October 17, 2005, included provisions that made it more dangerous for the creditors to violate the automatic stay. Previous to BAPCPA, there appeared to be an exception for creditors who violated the automatic stay if the acts were done in good faith due to a bona fide question of law regarding the applicability of the automatic stay. In other words, if a creditor technically violated the automatic stay but believed it was not violating the stay due to the facts or its interpretation of the law, such an act would not have been considered “willful” so as to allow damages, attorney fees, and costs. Pretty much any act by a creditor in technical violation of the automatic stay is now actionable, despite the fact that the creditor truly believes its actions are completely justified. Even if the debtor may not sustain any actual damages, the creditor will be liable for statutory damages.
There are some exceptions to the automatic stay. However, one of the exceptions included in §362(b) allows for actions in Family Court matters and also in Supreme Court involving domestic support obligations.
In short, the automatic stay is the most powerful tool in the bankruptcy lawyer’s arsenal. It will provide the debtor with an opportunity to resolve all claims in a single proceeding before the bankruptcy court. Without an automatic stay, it would be very difficult for a bankruptcy attorney, if not impossible, to guide the debtor toward the fresh start contemplated by the bankruptcy law.
If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.