What is the automatic stay?

The automatic stay provides instant relief from creditors.

The very moment your bankruptcy case is filed, creditors are barred from taking any collection action against you. The law is found in 11 U.S.C. 362 of the bankruptcy code and is referred to as the automatic stay. This law stops creditors from foreclosing on your home, garnishing your paychecks, repossessing your car, conducting a sherrif’s sale on your property, and several other collection activitiies.

The law also prevents creditors from continuing to call you, write letters, file lawsuits and even report negative credit against you.

Are you being sued?

If you are being sued by a creditor, you’re probably wondering how quickly that lawsuit can turn into collection activity. Usually within 3 or 4 weeks after you initially get served with the Complaint and Summons, the creditor can get a judgment. After that, they can use the judgment to begin aggressive collections. First, they will go after your wages and ask your employer to begin garnishing on their behalf. They can also garnish your bank accounts and conduct sherrif sales of your personal property.

They can also use a judgment to put a lien on your property, such as your home. Although many liens can be removed in bankruptcy, it is important to act quickly when filing to avoid getting a lien that may not be removable.

Bankruptcy will stop this entire process. We will often file and stop legal action from ever becoming a judgment. When we file your case, we will give notice to the court where you’re being sued and give notice to the creditor and their attorneys. This will keep one more judgment from appearing on your credit report and protect your assets.

Does bankruptcy discharge judgments?

If you have been sued and you have already received a judgment, don’t worry. The bankruptcy will discharge the debt. All of your dischargeable debt, including judgments, are wiped away and the creditor can take no further action against you. However, make sure to read about certain debts that are nondischargeable. For example, if you have a judgment against you for criminal restitution, fraud or intentional personal injury, you must plan to repay these debts after the bankruptcy. If you have this type of debt, you will want to consider Chapter 13 bankruptcy which may allow you to spread this type of nondischarbeable debt into affordable payments in the Chapter 13 plan.

How does the automatic stay affect a garnishment?

Quite often we will help clients file emergency bankruptcy petitions in order to stop a garnishment. Because your payroll department where you work is involved in the process, they must also get notice of the bankruptcy filing. The timing of the filing becomes very important.

Once a bankruptcy case is filed, the creditor is entitled to no more of your money. When we stop a garnishment, we will try to get the notice to your payroll department in time to keep them from running the check with the garnishment in it. For example, if you are paid on Friday and your payroll runs on Tuesday, we need to let your payroll department know of the bankruptcy before Tuesday in order for you to get a full paycheck.

However, if we don’t file until Thursday and the checks have already been cut, you still get your money. The garnishment will still come out of your check, but the creditor must return the money to you. If your case is not filed until Friday, then it will have been too late and the creditor will keep the garnishment. But all future garnishments will be stopped.

However, if your garnishment is for your monthly payment of alimony or child support, these payroll witholdings will not be stopped by the bankruptcy. If they are for payment of domestic support arrearages, then although they will be stopped, the debt will not be discharged and you will have to pay them out in a Chapter 13 plan, or if you file under Chapter 7, you will have to negotiate with the party taking the payments to continue paying the debt.

How does the automatic stay stop a foreclosure?

Just like with a garnishment or law suit, filing bankruptcy will immediately stop the foreclosure process. We have filed cases on the same day of the foreclosure sale and as long as your filing takes place before your home goes up for auction, the sale will be stopped. The foreclosure process in Utah can take several weeks to months from the moment you get the first Notice of Intent to Foreclose from your lender. Usually, we will see the sale scheduled approximately 2 to 3 months from the date of the notice of intent.

If you are hoping to use bankruptcy to save your home from foreclosure, you will want to consult with us as quickly as possible to determine how much time you have and how filing can help you stay in your home.

How does the automatic stay affect a repossession?

If you are 1 or 2 months behind on your car payment, you are likely receiving calls from the lender threatening repossession. Most contracts allow the lender to repossess immediately if you are late on even 1 payment. In fact, if you have a title loan with a payday loan type lender, you should expect repossession to happen fairly quickly.

Again, filing bankruptcy will stop this type of collection. If you have received the creditor calls threatening repossession, you’ll want to contact us as soon as possible to keep your vehicle in your possession.

What if you had your car repossessed yesterday and you call us today? In most circumstances where the bank has repossessed but they have not yet sold your vehicle, a Chapter 13 bankruptcy filing can put the car back into your possession. Again though, you’ll need to act fast and meet with us to file right away.

How does the automatic stay affect an eviction?

If you are a renter and your landlord has given you an eviction notice, filing bankruptcy may stop the process and keep you in your home. The key is you must file the bankruptcy before your landlord gets their eviction judgment signed by the district court judge. If the judge has already signed the order, bankruptcy will not stop the eviction.

If you use bankruptcy to stop the eviction, you must remember you will still need to pay rent for the period of time you remain in the property after the bankruptcy is filed. Bankruptcy will discharge all qualified debt you had up to the date of filing the bankruptcy petition. Each day you live in the premises after filing, is new postpetition debt and may not be dischargeable. To avoid a new eviction action from being started, you will want to consult with your attorney about this important area of the law.

If you plan to stay in your home but you have significant rental arrearages, you will want to consult with your attorney about managing the past due rent while still filing bankruptcy.

How does the automatic stay stop phone calls and letters from creditors?

One of the most prominent advantages of the automatic stay is stopping the annoying phone calls and collection letters from your creditors. Several of our clients had been getting daily calls to their employers or their family members. Although the Fair Debt Collection Practices Act gives you a way to control what phone number the creditors use and what times of day they can call, filing bankruptcy is the most effective way to shut them down.

When we first meet and you sign up for representation with My Bankruptcy Team, we will work with you to get word out to your creditors. When we file, we will work with you to identify those creditors that need to be contacted right away to stop the calls.

For those creditors that don’t get immediate notice of the case, they will get notice mailed to them by the court within a week or two. Usually it takes about 2 weeks for the calls to finally stop as mailed notices make their way to the creditor.

Of course, the threatening letters, referrals to collection agencies and negative credit reporting must also stop upon notice of the bankruptcy filing.

How long is the automatic stay in place?

In both Chapter 7 and Chapter 13, the automatic stay will remain in effect from the moment you file your case until you receive your discharge order. There are certain exceptions explained below. After the discharge order is signed by the judge there will be a permanent injunction in place preventing all creditors from any future contact. If you have filed a bankruptcy and you continue to get contact or threats of collection from a creditor, contact us to help you get the action stopped.

An exception to the permanent stay and injunction may occur where you have collateralized loans that are delinquent and the creditor wants to regain possession or control of the asset. For example, you are behind on your mortgage and you file Chapter 7 with the intent to surrender the home, the lender will be barred from continuing or beginning foreclosure action by the automatic stay. However most home lenders in this situation will file what is called a Motion for Relief from Automatic Stay. These motions are routinely granted unless you are current on your loan. If the motion is granted, the creditor may begin foreclosure even while your bankruptcy case is still open and pending. Occasionally, but not often, banks may seek relief from the stay for car loans as well.

What about codebtors and the Chapter 13 Codebtor Stay?

If you have a cosigner on any of the loans you are planning to discharge in your bankruptcy, you must be aware that the creditor will continue to have the right to collect from the cosigner. Even after you receive your discharge, the codebter will remain liable on the debt.

In Chapter 7, the creditor may begin contacting the codebtor at any point when your case is filed. In Chapter 13, however, the law imposes what is called a Chapter 13 Codebtor Stay. This stay will prevent the creditor from contacting your cosigner until your case is closed at the end of the Chapter 13 plan. Many clients will choose Chapter 13 specifically because of this law. When they do, both the original debtor and the cosigner will enjoy relief from creditor contact.

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