Tag Archives: Automatic Stay

Automatic Stay

What Does Bankruptcy Actually Do?

If you don’t know where to start or what to ask about filing for bankruptcy, start here.

First of all, if you have more debt than you can pay – you are probably eligible for some form of bankruptcy protection.

Second, that last sentence used the term, “bankruptcy protection”, because the idea that people who owe more than they can pay need to be protected from their creditors is at the very heart of the bankruptcy process. Filing a bankruptcy is absolutely the fastest way to stop harassing phone calls, bills in the mail, threats of lawsuits, wage garnishments. Ultimately, a bankruptcy filing can be the first big step towards peace of mine and a good night’s sleep.

Third, bankruptcy is a process that can last anywhere from a few months to a number of years – depending on the chapter of bankruptcy that you file. At the root of this process is disclosing all of your assets and liabilities, some basics about your financial condition and then a conclusion as to how best to put you (and, to a much lesser extent, your creditors) in the best position to move forward. The best part of this conclusion is that it is generally made by you and your lawyer before the case is even filed.

Fourth, the biggest part of filing a bankruptcy is figuring out what your specific options will be and how best to utilize those options to put you in the position you want to be in. This is where a good lawyer comes into play. You want to keep your assets and lose your debt, which is the goal of a well planned bankruptcy filing. The alternative, losing your assets and keeping your debt, does happen but not generally in cases filed by good counsel for clients who honestly and willingly disclose everything they are asked to disclose.

If you have more specific questions, there are hundreds of posts on this blog that should answer most of them. Otherwise, give me a call or send me an email. I am always happy to answer the questions that can really keep you up at night.


Safer in Bankruptcy — the Wrap Up

At the conclusion of a bankruptcy an Order is entered called the discharge.  It is the discharge that functionally eliminates the debtor’s personal liability (meaning his legal responsibility for paying) the debt incurred prior to the bankruptcy filing.  In many ways the discharge is the wrap up of the whole bankruptcy process, and it makes everything that happens before it final and permanent.

The downside of the discharge is that it also means the debtor is once again outside the safety of the bankruptcy court and back in the real world — although without all the baggage that caused the bankruptcy filing in the first place.

Clients are thrilled when they get their discharge.  It is OVER!  I am free!  I am frequently a bit wistful, because I know that when something else happens (and life is always happening), the debtor may be less comfortable inside the bankruptcy; but the debtor is far safer.  Inside of a Bankruptcy the Debtor is protected by the Automatic Stay and the Confirmation Order (if in a reorganization chapter).  Those things mean procedural protections and, most importantly, time, to deal with whatever life throws at you.

We have a false feeling of control over our lives.  Really what makes debt and bankruptcy both so scary is the sense of being out of control — but we are used to that.  We aren’t used to bankruptcy so it feels scarier, when in many cases it is far safer.

We are living in the most uncertain times that any of us have lived through, and we are all going to have to learn new survival skills.  I hope that for you bankruptcy won’t be one of them, but if it is, try to be less anxious rather than more.


Safer in Bankruptcy — Part 2 — The Automatic Stay

The instant that a bankruptcy is filed an order is entered automatically, and it stays (or temporarily stops) all collection activity against the debtor or property of the debtor.  Instantly.  Automatically.  Boom.  All collection activity must stop.  That means lawsuits, wage garnishments, nasty letters, annoying phone calls (Ok, so I don’t know any court that has managed to stop the car warranty calls, but we’re working on it.).

That order remains in place until either the Court modifies or lifts it, the Debtor’s discharge is entered or the case closes without a discharge.  The automatic stay is designed to give someone who has just filed for bankruptcy literally months of breathing room.

Where the automatic stay is most likely to get cut short is when someone files for bankruptcy and doesn’t continue making payments on a secured loan — most commonly a car payment.  In that case the lender has the right to ask the court to lift the stay and let them repossess the car.  A chapter 7 bankruptcy is not the right place to be if you are not current on a vehicle that you need to keep.  If that is the case, file a chapter 13 bankruptcy.

However, if you find yourself with more debt than you can pay, but you are current on your car loans and mortgage (if you have them), but your phone is ringing off the hook, you are afraid to open your mail, and your payroll office has just received a wage garnishment; the automatic stay is the legal equivalent of a Calgon bubble bath commercial from the 70’s.


Safer in Bankruptcy – Part 1

One of the things I am working on this weekend is a demand letter to the attorney for a local credit union.  You see, someone at the credit union seems to have thought that taking advantage of an elderly man with early stage dementia was a profitable idea.  I will concede that under ordinary circumstances what they did might qualify as greedy and morally questionable; it should, however, be legal.

Not so fast.

In this case the elderly customer just happened to be in an active Chapter 13 Bankruptcy, and the Credit Union knew this.  They got checks from the Chapter 13 Trustee on this man’s loan accounts up until the events I am upset about happened.

It would be inappropriate and unnecessary to go into what actually happened or why I think it happened.  What is relevant is that when someone is in an active bankruptcy, they are under the protection of the Bankruptcy Court.  That means that there are orders in place that are designed to protect them from their creditors.  The credit union in the case I am currently working on appears to have violated several of those.

Over the next few days I am going to talk about what those orders are and how they can be used to keep you safer inside a bankruptcy than outside — particularly in uncertain times.


Lawsuits, Bankruptcy and the Automatic Stay

A bankruptcy filing automatically stays (or temporarily stops) all collection activity against the debtor or property of the debtor; and that includes virtually all lawsuits involving the debtor. That is the easy answer. Yes, a bankruptcy filing will stop that lawsuit against you! It just isn’t always the whole answer.

Most of the time when people call they are asking about a simple collection case – an old credit card, medical bills, maybe the balance due after a repossession. In those cases a bankruptcy filing stays the lawsuit; and when the discharge is entered a few months later, the lawsuit is stopped for good. That answer is accurate for the vast majority of callers. So, if you are worried about a simple collection case, a Bankruptcy will fix it.

The problem comes when whomever answers the phone in the law office doesn’t ask enough questions. If the lawsuit isn’t a simple collection case, for instance, if the person calling is being sued by a former employer for stealing or embezzling money. If the lawsuit is alleging any type of fraud. If the lawsuit is alleging intentional and willful injury to property. If the lawsuit is a paternity action or an attempt to collect past due child support or alimony. Those lawsuits won’t just go away, although the Bankruptcy filing will slow them down some. The worst scenario, though, is a case that looks look like a simple breach of contract case or maybe simple negligence, it may be between former business partners or friends; but the case has gotten emotional and angry and it has become more about a pound of flesh than recovering specific economic damages. In other words, the worst case scenario is a lawsuit that has started to look more like a divorce than normal litigation.

In those cases the answer is still correct that a Bankruptcy filing will stay the lawsuit – it just might not end it, and it really might not stop the fight.

The Bankruptcy Code includes a list of things that are excepted from the Debtor’s discharge. That means that even though the Automatic Stay might stay the problem, when the stay is replaced by the discharge, this type of problem will still be there – waiting. The most common of these are debts incurred shortly before the bankruptcy was filed (presumably with the intention of filing bankruptcy and not paying it), student loans, recent taxes, child support or alimony.

Some of these require that something called an Adversary Proceeding be filed within the bankruptcy. Some of them don’t; and some times the creditor may just cause other problems within the bankruptcy. Stay tuned for more on this subject. I will tag these posts as “persistent creditors” to make them easy to find.


How Long Before They Repo My Car?

I get asked this question a lot, and the answer varies pretty widely depending on the facts. Most commonly, though, I am asked this question by someone who needs to file for Bankruptcy and has made the decision that he cannot afford to keep his car. In other words, the client is going to surrender his interest in the car to the car lender during the bankruptcy.

There are a number of options in a Chapter 7 Bankruptcy for dealing with secured debt (i.e., debt that is secured by a lien on a piece of property, like a car loan or a mortgage). One of them is to surrender the property to the lender. So, the question being asked is really – so, how does that surrender thing work and how long does it take anyway?

Well, that depends.

I’m a lawyer, you were expecting a definite answer?

When the bankruptcy is filed the Debtor files a Statement of Intent that states what he intends to do with his secured debt. So, in this case, the Debtor will indicate that he intends to surrender the vehicle. However, at the instant that the case is filed the Automatic Stay goes into effect, and that stays (or temporarily stops) all collection activity against the debtor or property of the debtor – including the car in this illustration. So, even though the Debtor is indicating his intention to surrender his car to the lender, the lender can’t take it; because taking it would be an effort to collect a debt, and that is prohibited by the Automatic Stay. Are we having fun yet? Thought so.

Now the ball is in the lender’s court. They can either wait until the Bankruptcy is over with and then repossess the vehicle., or they can file a Motion with the Bankruptcy Court asking the Court to lift the automatic stay and abandon any interest that the Bankruptcy estate might have in the vehicle. The creditor can do that as soon as he learns of the Bankruptcy filing or not until later. It isn’t uncommon for creditors to wait until after the First Meeting of Creditors, which is generally about 30 days post-petition, to file their motion. Given these facts, once that motion is filed, it will be granted in about 3 or 4 weeks – kind of depending on how excited the creditor’s lawyer is to get it done. The net effect of this motion being granted is the Bankruptcy Court gives the creditor permission to collect his debt against the property – not the debtor, just the property. The stay remains in effect as to the Debtor, and assuming that no objections to discharge are granted; the stay will be replaced by the discharge injunction at the conclusion of the Bankruptcy. The discharge will prohibit the car lender from EVER trying to collect money from the debtor again. The creditor is welcome to the car, because he has a lien on it; but that is all he gets.

After the creditor gets permission to repossess the car, and he will – eventually. Some creditors will have someone out looking for it the next day. Others take longer to get around to it. In my office I point out to my clients that they don’t want to be driving this car if a repo guy might be looking for it. Walking out of the grocery store with ten sacks of groceries including 2 gallons of ice cream and finding no car to put them in is not a situation most of my clients want to find themselves in. So, I will generally arrange for the debtor to deliver the car to the lender. Not everyone does it that way.

The long and the short of this is that even if you want to give the car back it will take just under a month or . . . longer, to do so. On the other hand, if the Debtor wants to keep the car as long as possible, that is a completely different analysis and one that is going to vary widely depending on the specific facts, the creditor involved and even the court in which the case is filed.


Bankruptcy and the Holidays

Every year I expect for my phone to stop ringing right before Thanksgiving and not to start up again until after the first of the year.  After all, who wants to think about filing for Bankruptcy during the holidays?  Even better, who wants to come up with cash for attorneys fees in December?

Then, the phone rings; and it rings again.  Sure enough, the Oklahoma County Sheriff’s office scheduled Sheriff’s Sales for December 13.  Thanks, Sheriff!  “What?  Love, Beal and Nixon is about to garnish your wages and right before Christmas?  Really? ”  Thanks, guys!

The sad thing is that these phone calls don’t have to happen in December.  That foreclosure going to Sheriff’s Sale December 13?  It was filed early this year, and the home owner was missing payments before that.  The garnishment that will be coming out of the December 15th pay period?  Well, that lawsuit was filed last summer.

If those two callers had called earlier this year, they might have had more options.  They would have had more time to get some money together.  They wouldn’t have needed to add a Bankruptcy filing to their holiday to-do list.  Is it too late?  No.  In a very real sense will you more fully appreciate the Christmas story with a December Bankruptcy filing?  Well, quite possibly; but it really isn’t the kind of religious experience I recommend.

So, for this coming year — call earlier, because come December of next year, you won’t want to be having to find time and money for me when you could be enjoying the season of grace and expectation, of unconditional love and acceptance; instead of the automatic stay.

See you in January.


I’ve Already Been Sued — is it too late to file for Bankruptcy?

I get this question a lot, and it is one of those questions that requires a little interpretation.  I don’t think that anyone who calls and asks this question really believes that just because you have been named in a lawsuit means that you can never file for Bankruptcy, which is what the question asks.  In reality there are three questions lurking here.

The first question fleshes out this way, “I’ve been sued over a debt I did not and could not pay.  The Plaintiff has taken a judgment against me and recorded that judgment in County records.  What exactly does all of that mean, and if I file for Bankruptcy now, what can a Bankruptcy do for me with respect to that judgment?”

Like with most things the answer to that question is going to vary from State to State, and I do not presume to discuss anything here other than Oklahoma State law.  That being said, in Oklahoma a judgment gives the creditor certain rights, including the right to garnish wages, levy on bank accounts and record that judgment in County records.  Once the judgment has been recorded, it creates a lien on any real estate owned by the Debtor in that County.

That isn’t nearly as bad as it sounds.  First of all, there are some limits on wage garnishments.  Bank levies are rarer for a variety of reasons, but what most callers asking this question are really concerned about is a judgment lien attaching to their house.  Now, a judgment lien attaches to all real estate owned by the Debtor in the County, so if a Debtor owns a house that he lives in and another house — say a rental property, the lien will attach to both properties.  That is significant, because in a Bankruptcy a judgment lien can be removed from homestead property, but it cannot be removed from real estate that you own and don’t live in.  Also, a judgment lien cannot be foreclosed on homestead property (meaning the creditor can’t force a sale of the house to get its money), but it can be on property that the debtor owns but doesn’t live in.

Translated, this means that in a Bankruptcy a judgment lien can be removed from your home.  If you own other property, it probably cannot be removed and will survive the bankruptcy.

Now, just because you’ve been sued, doesn’t mean a judgement has been taken against you.   This is really the answer to the second question.  The second question fleshes out like this, “I’ve just been sued.  The lawsuit was filed a few days ago, and a process server just handed me the Petition and Summons.   Does that mean that a judgment has been taken against me?”  In a word, No.   These things take time.  A lawsuit generally ends with a judgment.  it doesn’t start with one.   However, filing a bankruptcy takes some time as well, so, calling an attorney sooner rather than later is always a good idea.
The third question is “I’ve just been sued.  I owe the money.  Can a bankruptcy filing stop the lawsuit, prevent a judgment from being entered and make sure that no wage garnishment will ultimately be served on my employer?”

The answer to that question is very simple.  Yes.  Lawsuits, wage garnishments and bank levies are all stopped by a bankruptcy filing.  They are not stopped by your making an appointment with a bankruptcy lawyer, by your filling out forms or even by your paying the lawyer money.  They are stopped when your Bankruptcy petition is uploaded to the Bankruptcy Court’s electronic filing system.

The minute that a Bankruptcy is filed an order issues automatically from the Bankruptcy Court that stays (meaning temporarily stops) all collection activity against the Debtor or property of the debtor.  That means everything stops.  The automatic stay is one of the really cool things about a bankruptcy filing.

So, is it too late?  No.  That does not mean that waiting any longer is a good idea.   Getting the bankruptcy filed will take time, so be sure that you leave yourself the time you need to prevent the creditor suing you from causing you any unnecessary pain.


Repeat Bankruptcy Filings

Most people have heard something about only being able to file a Bankruptcy every so many years.  I generally hear seven (which is the Biblical time period (Deut. 15:1).  Although, what most people are thinking of  is the time between Chapter 7 filings, and that is currently eight years.

The truth, like with most things, is more complicated.  I like to refer to the 2-4-6-8 rule.  This assumes, by the way, that every case filed ends in a discharge.  So, it is two years between a 13 followed by another 13 filing (although, you aren’t supposed to be able to complete a 13 plan in less than three years — hey, nobody every said the 2005 reform act made sense); four years between a 7 followed by a 13; six years between a 13 followed by a 7; and 8 years between two chapter 7’s.

So, I got a phone call this week from a man who has filed six Bankruptcies in the last 16 years.  That doesn’t compute.  First of all, only two of them were Chapter 7 cases.  Second, to date, none of the 13 filings have completed and resulted in a discharge — so, they never triggered the relevant waiting periods.

What causes that kind of repeat filing?  Despite what most people will assume, this kind of pattern generally includes a chronic health problem and at least a couple of periods of unemployment.  Those two things manage to cause the accumulation of medical debt, and periods of missed mortgage payments either during illness or following  a job loss.  The four incomplete Chapter 13 filings will almost always be caused by job losses, because you can’t make plan payments without regular income.

So, what does this tell me when I pick up the phone and encounter a would-be client who clearly has a history with the Bankruptcy Court?  The first thing I want to do is pull up his case history on the Court’s web site.  I want to see what was filed, when, and what happened to it.  Is he eligible for another filing, why did prior filings fail, have those problems been addressed, is there a compelling reason to try again?  These are the questions I begin with.

For the would be client there are a number of concerns.  First, is he eligible to refile?  Even if he meets the 2-4-6-8 rule above, if his most recent case was dismissed with a bar against refiling for 180 days (sometimes improperly referred to as a dismissal with prejudice); then, he has to wait out that 180 day period even if he has an aggressive creditor snapping at his heels.

Second, if he has been a debtor in at least one bankruptcy case in the last year, then the automatic stay will only last for 30 days when the case is filed unless the Judge agrees to extend it.  That requires notice to all creditors, an affidavit from the Debtor explaining why he should be given another chance; and possibly a hearing on the issue.  If the would be client has been a debtor in two bankruptcy cases pending in the last year, then there will be no automatic stay at all unless the Judge agrees to impose one.

Third, the would be client is going to have to convince me that he is worth taking on as a client; and he can expect that I will require considerably more cash up front than I would otherwise.  Of course, he may also have to convince the Court of his good faith if any annoyed creditor were to complain.

So, successive filings may be possible.  Oh, and you are always eligible to file a Chapter 13, you just may not be eligible for a discharge at the end.  The time periods above assume that the Debtor will need a discharge at the end of the case.  Without it, the Debtor will need to find a way to pay 100% of his debt in the Chapter 13.  That can be very useful, and a Chapter 7 filed with the intention of following it immediately with a Chapter 13 can be a very useful strategy for dealing with certain kinds of problems.  Oh, that is called a Chapter 20, by the way; and I will blog about it another day.