One of the most beneficial parts of filing for bankruptcy, apart from actually receiving a discharge of debts, is an automatic stay.
The Automatic Stay
An automatic stay is put in place when you file for Chapter 7 or Chapter 13 bankruptcy. This automatic stay prohibits most creditors from continuing with collection activities and can provide welcome relief to debtors. In some ways, an automatic stay can be one of the main reasons people decide to file for bankruptcy. In many ways, it allows a debtor to regroup.
What an Automatic Stay Protects
An automatic stay can protect a debtor from some common emergencies that happen when you file for bankruptcy.
Utility disconnections. If you’re behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service, an automatic stay can prevent that for at least 20 days.
Foreclosure. An automatic stay temporarily stops foreclosure proceedings. But it’s important to remember that most likely the creditor will be able to proceed with the foreclosure sooner or later.
Eviction.The automatic stay may offer some help if you are in danger of being evicted.
An automatic stop will not help if the landlord alleges that you’ve been endangering the property. A landlord is also able to ask the court to lift the stay, thus allowing the eviction to proceed.
Collection of overpayments of public benefits. If you receive public benefits and were overpaid, the agency is allowed to collect the overpayment from future checks. An automatic stay prevents this collection from your future check. If you become ineligible for the benefits, the automatic stay will not prevent the agency from denying or terminating benefits for that ineligibility reason.
Multiple wage garnishments. An automatic stay stops garnishments.
What Cannot Be Prevented
An Automatic Stop can prevent the issues listed above but there are a number of things it cannot prevent. A bankruptcy lawyer can help walk you through the particulars of your situation.
There are some instances in which an automatic stay won’t help you. Here are a few:
Certain tax proceedings. The IRS can still audit you, issue a tax deficiency notice, demand a tax return, issue a tax assessment, or demand payment of such an assessment. The automatic stay does stop the IRS from issuing a tax lien or from seizing your property or income.
Support actions. An automatic stay does not stop a lawsuit against you that seeks to establish paternity or to establish, modify, or collect child support or alimony.
Criminal proceedings. The criminal component will not be stopped by the automatic stay. Criminal proceedings that can be broken down into criminal and debt components will be divided. Example: if you have been convicted of writing a bad check and thus sentenced to community service and ordered to pay a fine, your obligation to do community service will not be stopped by your filing for bankruptcy.
Loans from pension. Money to repay a loan from certain types of pensions and IRAs can still be withheld from your income despite the automatic stay.
Multiple filings. The stay automatically terminates after 30 days unless you, the trustee, the U.S. Trustee, or a creditor asks for the stay to continue.
Creditors Can Still Get Around Automatic Stays
Just to note: a creditor can usually get around the automatic stay by asking a bankruptcy court to remove, or “lift” the stay.
When you’re facing a large amount of debt, it can feel insurmountable. Should you file for bankruptcy? How does bankruptcy work? As always, it’s advised that you work with a phoenix chapter 7 bankruptcy lawyer or phoenix chapter 11 bankruptcy lawyer to help you determine if bankruptcy is the next step for you, or if there are other options for you.
Overview of Chapter 7 and Chapter 13
Chapter 7 (also known an straight bankruptcy) is the most common form of bankruptcy and is available to consumers and businesses.
Under Chapter 7, assets are sold off so that the proceeds can go to paying debt. All proceeds from the sales of those assets are handed over to a trustee, who then pays down any and all creditors. After all creditors have been paid off they are no longer able to collect funds directly from you and your debts are cancelled, meaning you are no longer responsible for them.
You are not able to discharge the following debts under Chapter 7:
- Alimony and child support
- Drunk driving judgments, criminal fines, restitution
- Debts incurred as the result of fraud or intentional wrongdoing
- Back taxes under 3 years old
- Student loans
- Recent purchases made for substantial amounts
- Contracts involving titles or liens such as land or automobiles
You are not able to discharge the following debts under Chapter 13:
- Alimony and child support
- Drunk driving judgments
- Criminal fines
- Student loans
Reasons to File Chapter 7
Chapter 7 bankruptcy should be chosen if the following apply:
- You have no hope and have no future hope of being able to repay any debts
- Your debts do not have co-signers on them
- You are going to be sued by creditors
- You don’t qualify for Chapter 13
Reasons to File Chapter 13
Chapter 13 bankruptcy should be chosen if the following apply:
- You have already filed Chapter 7 in the past six years
- Your debts have cosigners
- You will be able to pay your debts within three to five years
- Your income disqualifies you from filing for Chapter 7
- You need relief from collection proceedings and you want to pay your creditors back but just need some breathing room to get your finances under control
- You want to be able to file a Chapter 7 bankruptcy some time in the future
- You are behind on your mortgage
- You owe back taxes
- You have assets that could be liquidated in Chapter 7
- You’re a farmer with debt not related to your farming operations and do not qualify for Chapter 12
Chapter 7 Process
Filing for Chapter 7 bankruptcy can feel overwhelming, but the process is actually fairly straight-forward. As always, it’s advised that you work with a bankruptcy attorney to help guide you through the process.
From start to finish the entire Chapter 7 bankruptcy process takes from four to six months, and rarely do cases go to court. It should be noted that the process does require just one mandatory non-court appearance before the trustee. At the end of the process, debtors are able to discharge most or all of their debt.
Steps of a typical Chapter 7
1. Pre-bankruptcy credit counseling. For a person to be able to file Chapter 7 bankruptcy, they must first receive credit counseling from an approved agency. This needs to happen within the six months prior to filing.
2. Bankruptcy petition. Filing consists filing out some paperwork, including the bankruptcy petition, a schedule that details your financial information, and other forms that are there to help you calculate your income, expenses, and what can be considered exempt. This is where it is helpful to involve a bankruptcy attorney that can explain what needs to be included on these forms.
3. Automatic stay. When a debtor files a bankruptcy petition, an automatic stay goes into effect. This automatic stay prohibits creditors from continuing to collect from a debtor.
4. Assignment of a bankruptcy trustee. A court will assign a bankruptcy trustee to administer the case. This assigned trustee will attempt to maximize assets included in the bankruptcy estate so that the sales of the assets can be distributed to unsecured creditors. The trustee also reviews all the paperwork to check for inaccuracies and any possible fraud.
5. Meeting of creditors. Next, a debtor is required to attend a meeting of creditors hearing that is administered by the bankruptcy trustee. This is not a court hearing, but rather a meeting where a trustee will ask a debtor about his or her petition and finances. Creditors are allowed to appear, although most do not, and are also able to ask questions of the debtor.
6. Decision on Eligibility for Chapter 7. A court will next decide if the debtor is eligible for Chapter 7. A bankruptcy attorney will be able to assess this. One reason a court might deny eligibility of a debtor is because of the results of a means test that evaluates debts owed and income earned.
7. Decision on property. If property is exempt, a debtor keep it. If there is nonexempt property, the trustee decides next steps. One option is that it is seized and sold to repay creditors. There are a number of exemption options for property, and you’ll want to consult a bankruptcy attorney to review what assets you might be able to exempt in your filing.
8. Determination on Secured debts. Secured are debts that have property that can be used as collateral associated with them. You can often surrender the secured debt to reaffirm the loan or do nothing. Doing nothing means you will need to keep paying back the debt owed.
9. Financial management course. Before a debtor can receive a discharge, he or she must take a debtor’s education course.
10. Discharge. Between three and six months after a debtor file for bankruptcy, the court grants a bankruptcy discharge. At this point, the automatic stay is lifted.
11. Bankruptcy case closed. Once a discharge has been granted, a court closes the case. This usually happens a few days or weeks following the granting of the discharge.
Working with a Bankruptcy Attorney
Bankruptcy can be an overwhelming process. That’s why we advise that you work with a phoenix business bankruptcy lawyer that is familiar with various debt repayment options. We are committed to helping our clients understand their rights and options under the bankruptcy law and developing the debt relief solution that makes the most sense for each individual. We invite you to call (602) 648-3274 or contact our Arizona office to schedule a free initial consultation.
668 N. 44th St., Ste 320, Phoenix, AZ 85008