The Umbrella Effect of The Bankruptcy Stay
by: Victoria Ring
Updated to comply with new BAPCAP (advanced training for bankruptcy paralegals)
The following article is for training purposes only. It is not intended for legal advice.
Regardless of whether an entire petition or a skeleton petition is filed, the very moment the bankruptcy petition is filed with the bankruptcy court, a type of
umbrella for the debtor(s) is put into effect. This is called the bankruptcy stay which helps some common emergencies:
** Utility disconnections. If the debtor(s) are behind on a utility bill and the utility company is threatening to disconnect their water, electric, gas, or telephone service, the automatic stay will prevent the disconnection for at least 20 days. (Also, bankruptcy will probably discharge the past due debts for utility service.)
** Foreclosure. If the debtor(s) home mortgage is being foreclosed on, the automatic stay temporarily stops the proceedings, but the creditor will often be able to proceed with the foreclosure sooner or later. If the debtor(s) are facing foreclosure, Chapter 13 bankruptcy is usually a better remedy than Chapter 7 bankruptcy if the debtor(s) wish to keep their house.
** Eviction.
If the debtor(s) are being evicted from their home, the automatic stay may provide some help ? but the new bankruptcy law makes it easier for landlords to proceed with evictions. If the landlord already has a judgment of possession against the debtor(s) when they file bankruptcy, the automatic stay won?t affect these eviction proceedings.
The landlord can continue with the eviction just as if the debtor(s) had not filed for bankruptcy. And if the landlord alleges that the debtor(s) have been endangering the property or using controlled substances there, the automatic stay will not have much effect. In other cases, the automatic stay might buy the debtor(s) a few days or weeks, but the landlord will probably ask the court to lift the automatic stay and allow the eviction ? and the court will probably agree to do so.
** Collection of overpayments of public benefits.
If the debtor(s) receive public benefits and were overpaid, normally the agency is entitled to collect the overpayment out of their future checks. The automatic stay prevents this collection. However, if the debtor(s) become ineligible for benefits, the automatic stay doesn?t prevent the agency from denying or terminating benefits for that reason.
** Multiple wage garnishments. Filing for bankruptcy will stop wage garnishments dead in their tracks.
Plus, not only will the debtor(s) be able to take home a full salary, but they also may be able to discharge the debt in bankruptcy. Although no more than 25% of a debtor(s) wages may be taken to satisfy court judgments (up to 50% for child support and alimony), many people file for bankruptcy if more than one wage garnishment is threatened. For some people, who are living from paycheck-to-paycheck, any loss of income is devastating. Also, some employers get angry at the expense and hassle of facilitating a succession of garnishments and take it out on their employees. Although federal law prohibits an employee from being fired for one wage garnishment, an employer can fire an employee for multiple garnishments.
What the Automatic Stay Cannot Prevent
In a few instances, the automatic stay is unable to help debtor(s). These reasons are:
** Certain tax proceedings.?The IRS can still audit the debtor(s), issue a tax deficiency notice, demand a tax return (which often leads to an audit), issue a tax assessment, or demand the payment of such an assessment. However, the automatic stay does stop the IRS from issuing a tax lien or taking the debtor(s) property or income.
** Support actions. A lawsuit against debtor(s) seeking to establish paternity or to establish, modify, or collect child support or alimony isn?t stopped by the filing for bankruptcy.
** Criminal proceedings. A criminal proceeding that can be broken down into criminal and debt components will be divided, and the criminal component is not affected by the automatic stay. For example, if a debtor were convicted of writing a bad check, sentenced to community service, and ordered to pay a fine, their obligation to do community service will not be stopped by filing for bankruptcy.
** Loans from a pension. Despite the automatic stay, money can be withheld from a debtor(s) income to repay a loan from certain types of pensions (including most job-related pensions and IRAs).
** Multiple filings.?If the debtor(s) had a bankruptcy case pending during the previous year, the bankruptcy stay will automatically terminate after 30 days unless the debtor(s), the trustee, the U.S. Trustee, or a creditor asks for the stay to continue and proves that the current case was filed in good faith. If a creditor filed a motion to lift the stay that is pending during the previous case, the court may assume that the debtor(s) acted in bad faith, and they will have to disprove this assumption to get the protection of the automatic stay in their current case.
NOTE: This article is an excerpt from the book: How to Start a Bankruptcy Forms Processing Service. written by Victoria Ring and available online at www.713training.com
About The Author
Victoria Ring Permission to reprint this article as long as author's name and link to website are provided: Victoria Ring, www.713trianing.com
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