THE AUTOMATIC STAY IN BANKRUPTCY STOPS LAWSUITS
Many clients ask me about how bankruptcy stops any legal actions against you after you file a bankruptcy. One of the most basic benefits of a bankruptcy is that when you file for bankruptcy, something called the automatic stay immediately stops any lawsuit filed against you and most actions against your property by a creditor, collection agency, or government entity. The automatic stay gives you breathing room and umbrella of protection to reorganize your affairs or wipe out debt.
For consumers, the automatic stay in a bankruptcy is most helpful with stopping a foreclosure. In New Jersey, you can save a house at any time prior to a sheriff sale. Thus, the filing of a bankruptcy before a sheriff sale will provide you the ability to save the house.
In addition, if you are at risk of being evicted, involved in being sued for something, having your wages garnished, the automatic stay may provide a powerful reason to file for bankruptcy and stop all of these problems. It also stops any pending wage garnishments of levies.
Some things the Automatic Stay Can Prevent
- Foreclosure. If your home mortgage is being foreclosed on, the automatic stay temporarily stops the foreclosure proceedings. If you are facing foreclosure, Chapter 13 bankruptcy is usually a better remedy than Chapter 7 bankruptcy, if you want to keep your house. It will give you time to catch up on any mortgage payments that you fell behind on.
- Utility disconnections. If you are behind on a utility bill and the company is threatening to disconnect your water, electric, gas, or telephone service, the automatic stay will prevent the disconnection for at least 20 days. The Bankruptcy will discharge pas due debts arising prior to the filing of the petition for past due debts.
- Law Suits. Any pending lawsuits are stopped immediately by the automatic stay.
- Eviction. If a landlord has filed an eviction proceeding against you, the automatic stay may provide some help -- but the new bankruptcy law makes it easier for landlords to proceed with evictions. If your landlord already has a judgment of possession against you when you file, the automatic stay will not affect these eviction proceedings; the landlord can continue just as if you did not file for bankruptcy.
- Wage garnishments. Filing for bankruptcy stops garnishments immediately. You will also be able to wipe out the debt that is causing the wage garnishment.
What the Automatic Stay Cannot Prevent
Below are some examples of where the automatic stay does not help you:
- Criminal proceedings. A criminal case against you is not necessarily stayed.
- Certain tax proceedings. The IRS can still take certain actions. However, the automatic stay does stop the IRS from issuing a tax lien or seizing your property or income. Also, certain IRS debts are dischargeable or can be wiped out in a bankruptcy, such as in the case when that debt is three years or older from the date of the filing. Certain other requirements must also be met for it to be dischargeable.
- Multiple filings. If you had a bankruptcy case pending during the previous year, then the stay will automatically terminate after 30 days unless you take action by way of motion for the stay to continue and can show that the subsequent or next case was filed in good faith.
- More than two Filings in a Year. The stay does not apply at all if you had two bankruptcy filings within a year that were dismissed. You will have to make a special motion to the court in order to have the stay imposed against the actions of creditors.
How Creditors Can Get Around the Automatic Stay
A creditor cannot get around the automatic stay unless it requests permission to do so of the court by way of motion. The creditor must show reasons why it is entitled to get around the stay.
An example of a reason for a creditor getting permission from the court to get around the automatic stay is where mortgage payments are not being made at all. You have the right to save the home and catch up on mortgage payments you have fell behind on. If you are not making an effort to catch up, however, the creditor may be entitled to file a motion with the court to lift the automatic stay.
For ways to find out how the bankruptcy stay can help you, contact us at jscura@scuramealey.com or give us a call.
