Chapter 7 Bankruptcy and the Automatic Stay: Will it Stop my Creditors?
August 25, 2009
After you file for bankruptcy, the court issues an order called an “automatic stay.” This stops many creditors from trying to collect from you. This article discusses what the automatic stay can and cannot do for the bankruptcy filer.
What does the automatic stay prevent or stop?
Calls and letters from creditors and debt collectors
Once notified of your bankruptcy filing, creditors and debt collectors must stop calling you to try to collect. They must also stop sending you collection letters.
If you receive collection communications after filing bankruptcy, you can file a violation of stay action against the debt collector or creditor. Save any letters or recordings of calls that violate the automatic stay.
Foreclosure
The automatic stay temporarily stops foreclosure proceedings. But, the mortgage lender will often petition the court to lift the automatic stay to proceed with foreclosure. More on this below.
A Chapter 13 bankruptcy — which would allow you work out a repayment plan to bring your mortgage current– may be able to help if you need long-term help paying mortgage arrearages.
If you are not currently behind on your mortgage but you need to be relieved of your unsecured debt (for example, credit card debt) to continue paying your mortgage, a Chapter 7 bankruptcy may help as well.
But, keep in mind a Chapter 7 bankruptcy takes 3-4 months to complete. So, you will need to avoid mortgage delinquencies during that time. If you don’t, your servicer will likely petition the court to lift the automatic stay so it can foreclose.
Eviction
If you are a renter and you are being evicted from your home, the automatic stay may help buy you some time.
But, you will need to file bankruptcy before your landlord gets a judgment of possession against you. Once the landlord has a judgment of possession, he or she may proceed with the eviction as if you hadn’t filed for bankruptcy.
Wage garnishments
Filing bankruptcy stops many wage garnishments.
Garnishments of bank accounts
A bankruptcy filing may stop a bank account garnishment, depending on how far the garnishment has already progressed.
If you have received a notice that your bank account has been garnished, contact an attorney as soon as possible.
Utility disconnections
If a utility company is threatening to disconnect your electric, gas, water, or telephone service, the automatic stay will prevent disconnection for at least 20 days.
What the Automatic Stay Will Not Prevent
Some tax proceedings
The IRS can still audit you and issue demands for payment. But, the automatic stay does stop the IRS from issuing a tax lien, seizing your property, or garnishing your income.
Child support and alimony
Bankruptcy won’t stop a paternity lawsuit against you. Bankruptcy will not stop actions seeking to establish, modify, or collect child support or alimony.
Criminal proceedings
Bankruptcy will not stop criminal proceedings. But, if a criminal case also has a “debt component,” (for example, you are ordered to pay a fine), bankruptcy may stop the debt portion of the proceedings.
Loans from a pension
The automatic stay will not prevent your employer from withholding amounts to repay a loan from certain types of retirement plans and pensions. These include most IRAs and job-related pensions.
Multiple filings
If you had a previous bankruptcy case pending during the past 12 months, then the automatic stay will terminate after 30 days.
You can petition the bankruptcy court to extend the stay if you can prove the current case was filed in good faith.
Creditors Can Ask the Court to Life the Automatic Stay
While the automatic stay goes into effect automatically (hence the name), creditors may ask the bankruptcy court to remove (“lift”) the stay, if it is only postponing the inevitable.
For example, if you are far behind on your car or house payments and you will not be able to afford them even after your bankruptcy is discharged, the creditor in question may petition the court to lift the stay so it can proceed with foreclosure of the house / repossession of the car. (This will play out differently in Chapter 7 than in Chapter 13. Consult an attorney for more details.)
This makes bankruptcy planning very important. Both you and your attorney should devote time and attention to ordering your financial affairs so you can truly have a fresh, sustainable start after your bankruptcy is completed.
Chapter 7 Bankruptcy: What Documents Do I Need?
August 23, 2009
You may have heard there is a lot of paperwork involved in filing for bankruptcy. To some extent this is true, but our office can help eliminate some of it by getting some information about your creditors or tax transcripts directly from the credit bureaus and IRS.
You will still need to gather some documents, however. A partial list appears below. Because every case is different, you will probably need to gather a few additional documents for your particular case.
PLEASE NOTE: You do not need to have all of these documents in order to make an appointment for a consultation with our office.
We provide this list to help you in your bankruptcy pre-planning. It is easier to save the documents as you receive them (monthly bills, for example) than it is to gather them all at once.
Credit counseling certificate
You need a certificate showing you completed your Trustee-approved credit counseling course. You can complete this course online, and the certificate is good for 6 months after the date you receive it. See the U.S. Trustee website at this link to find a list of approved courses.
Copies of Federal Tax Returns
Your attorney will need to review at least the past 2 years of federal tax returns. If you do not have these, we can order transcripts for you.
Copies of Credit Reports
While we will order copies of your credit reports for you when it is time to complete your bankruptcy petition, it is a good idea for you to order a copy in advance and review it.
After reviewing your credit report, make a list of any creditors who do not appear on the credit report. Even if they do not appear on your credit report, creditors must be notified of your bankruptcy.
Examples of creditors who often do not report to the bureaus include doctors, dentists, and debt collectors. Loans made by family members are also unlikely to be reported to the credit bureaus.
See this link for information about ordering free or reduced-cost credit reports.
Other documents
Other documents you will likely need in preparing your filing:
> Pay check stubs for the past six months for both filer and spouse,
> A photocopy of your driver’s license and social security card,
> Federal and state tax returns for at least the last two years,
> Personal bank account statements for the past year,
> Business bank account statements for the past year if you operate a business,
> All credit card statements for the past six months,
>All mortgage billing statements for the past six months,
>All personal loan billing statements for the past six months,
>Bills showing amounts owed for medical or dental debts,
>Copies of bills for other monthly expenses (gym dues, security system, etc.)
>All car loan billing statements for the past six months,
>Copies of car titles for all vehicles,
> All utility bills for the past six months,
> Any collection letters, lawsuit papers, complaints, or attorney notices,
> Information about any collection phone calls you have been receiving,
> Copies of deeds for real estate you own,
> If divorced, a copy of the divorce decree and any settlement agreements, and
> Copies of alimony or child support orders in effect.
Chapter 7 Bankruptcy: Who Can File?
August 23, 2009
Use the questions below to determine whether you are eligible to file Chapter 7 Bankruptcy. If you need help with these questions, please feel free to call our office for a free phone consultation.
Question One:Â Are you Eligible under the Income Guidelines?
Question Two:Â Have You Previously Received a Bankruptcy Discharge?
Question Four:Â Have You Accumulated Debts in Anticipation of Filing or Concealed Assets?
Question Five:Â Have you Taken the Required Credit Counseling Course?
Question Six:Â Are you Current on all Tax Filings?
Question Seven:Â Have you Gathered Your Documents?
___________________________________________________________________________________
Question One:Â Are you Eligible under the Income Guidelines?
A. Skip this step if you are:
A disabled veteran whose debts were incurred during active duty.
Your debts are primarily from the operation of a business.
B. Median Income and The Means Test
(1) Determine whether your “Current monthly income” is higher than median income for a family of your size in your state.
Your “current monthly income” is your average monthly household income over the last six months before you file.
Find the figures to use for your state’s median income at this link.
If your income is less than or equal to the median income for a family of your size in your state, you are presumed to be eligible to file Chapter 7 bankruptcy. But, see below for the “totality of the circumstances” test.
If your income is more than the median, you must proceed to the next step…the “Means Test.”
(2) If Necessary, Take the Full Means Test
If your average monthly income for the six-month period prior to filing is higher than the median income for a family of your size in your state, you need to take the “full” means test to determine if you are eligible to file Chapter 7 bankruptcy.
While there are many means test calculators available on the internet, many of them are not reliable. If you need to take the means test, our office will do this calculation for you as part of your initial consultation.
(3) “Totality of the Circumstances” Test
Even if your income is below the median for a family of your size in your state, your filing will still be scrutinized by the Trustee under the “totality of the circumstances” test.
What does this mean? If, for example, you seem to have lots of income left over after paying your monthly bills, the Trustee could theoretically throw out your Chapter 7 bankruptcy for being abusive.
Consequently, it is very important to be sure you disclose ALL expenses when you complete the financial information associated with your bankruptcy filing.
Sometimes people are embarrassed of high expenses and will try to minimize them when filling out forms or disclosing this information to their attorney. This is a mistake for the reasons noted above.
Question Two:Â Have You Previously Received a Bankruptcy Discharge?
Chapter 7 Discharge: You may not file a Chapter 7 bankruptcy case if you received a Chapter 7 bankruptcy discharge within the past EIGHT years.
The dates are calculated from filing date to filing date.
Example: if you filed your previous Chapter 7 bankruptcy on August 1, 2001 and received your discharge on February 1, 2002, you are eligible to file another Chapter 7 bankruptcy on August 1, 2009.
Chapter 13 Discharge: You may not file a Chapter 7 bankruptcy case if you received a Chapter 13 bankruptcy discharge within the past SIX years (again calculated filing-date-to-filing-date.)
You are not eligible to file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because (1) you violated an order of the Bankruptcy Court, (2) the court found the previous filing fraudulent or abusive, or (3) you requested dismissal after a creditor asked for relief from the automatic stay.
Question Four:Â Have You Accumulated Debts in Anticipation of Filing or Concealed Assets?
If you have run up debts in anticipation of filing bankruptcy and / or concealed assets, you will not be eligible to file bankruptcy.
The following are examples of transactions that can render you ineligible to file and / or to discharge your debts in bankruptcy:
Making false statements about your income or debts on a credit application,
Changing the way title is held to your house, car, or bank accounts,
Giving or selling assets to your friends or relatives to hide them,
Running up debts for luxury items when you had no way to repay, or
Concealing property or money from your spouse during a divorce proceeding.
Question Five:Â Have you Taken the Required Credit Counseling Course?
Before you file for Chapter 7 Bankruptcy, you must take a Credit Counseling Debt Education course approved by the Office of the U.S Trustee.
You can take the class online or over the phone. There are many Trustee-approved vendors.
See the U.S. Trustee website at this link to find a list of approved vendors.
Question Six:Â Are you Current on all Tax Filings?
Your bankruptcy attorney will need to review tax returns from at least the past two years. Additionally, you must be current on all tax returns in order to qualify for bankruptcy relief.
Question Seven:Â Have you Gathered Your Documents?
If you need help with any of the above questions, please call our office for a free bankruptcy phone consultation.
Chapter 7 Bankruptcy: What is it?
August 20, 2009
Bankruptcy is a federal court process that helps consumers and businesses eliminate debts. The two most common kinds of consumer bankruptcy are Chapter 7 and Chapter 13. This post discusses the basics of Chapter 7 bankruptcy.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is what most people think of when they consider filing for bankruptcy. It is also called “liquidation bankruptcy.” At the end of a Chapter 7 bankruptcy, many unsecured debts are wiped out. Personal liability on secured debts can often be eliminated as well.
Am I eligible to file a Chapter 7 bankruptcy?
Most people who call our office are eligible to file Chapter 7 bankruptcy.
But, if you have a certain amount of “disposable income,” you will not be permitted to file a Chapter 7 bankruptcy. (You may be eligible to file a Chapter 13 bankruptcy, however.)
Your “disposable income” is determined by subtracting certain allowed expenses and debt payments from your income.
Overview: Chapter 7 Bankruptcy
First, you must determine if you qualify for Chapter 7 bankruptcy.
Assuming you qualify for Chapter 7, the next step is making a list of everything you own.
You decide which items you would like to keep– up to a certain amount. This is called your “exemption amount.”
Your exemption amounts are determined by your state of residence.
In theory, the property you own that isn’t covered by your exemptions can be taken and sold to pay back some of your debt.
In reality, very few consumers filing Chapter 7 bankruptcy are forced to sell any of their property during the bankruptcy process. This is partly because filers can apply their exemptions to keep most of the property they own.
Most unsecured debt left over after this process is “discharged” or wiped out.
Secured debt is treated differently. And, not all unsecured debts can be discharged. More on this below.
Secured debt in a Chapter 7 bankruptcy
What is secured debt?
Secured debt is debt that is attached to (“secured” by) an asset. The asset can often be repossessed if you don’t make payments on the debt as agreed. An example of secured debt is a car loan, in which the debt (the car note) is secured by the car.
Secured debt might also be in the form of a lien on your property. An example would be judgments against you that have been reduced to liens on your property. There are other kinds of liens as well; for example, mechanic’s liens, tax liens, or liens for unpaid child support.
What happens to secured debt in a Chapter 7 bankruptcy?
Personal liability for some secured debts can be eliminated in a bankruptcy. But, often the lender retains the lien portion of the debt and can use it to enforce the lending agreement.
For example, you may not be personally liable for paying your mortgage if the mortgage debt is discharged in a bankruptcy. But, after bankruptcy, the lender keeps the lien on your house and can foreclose if you stop making payments.
If you owe money on a secured debt such as a car and you file for a Chapter 7 bankruptcy, you often have three options:
- Return the property to the creditor, or
- Continue making payments and keep the property, or
- Pay the creditor a lump sum amount equal to the current replacement value of the property (this is often referred to as “redemption,” and is only available for certain secured debts.)
What kinds of debts are NOT discharged in a Chapter 7 bankruptcy?
Child support, spousal support, most tax debts, and most student loans are not discharged in a Chapter 7 bankruptcy.
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