It can be overwhelming to find yourself drowning in excessive debt while creditors pursue collection services. Filing for Chapter 7 bankruptcy immediately issues an automatic stay, a federal injunction that stops all collection efforts by creditors. The automatic stay will protect creditors from continuing collection activities and provide debtors with a sense of relief while they regroup in bankruptcy.
Some exceptions apply to the automatic stay, and creditors can ask the bankruptcy court to lift the stay at any time. It’s essential to know all of this information before filing for bankruptcy. A bankruptcy attorney can help you understand the exceptions to the automatic stay, how it affects certain creditors, and when they can lift the stay. This ensures you don’t make any decisions that can negatively impact your financial future.
What Is Automatic Stay?
The automatic stay is a federal injunction that goes into effect immediately after filing for bankruptcy and stops creditors from collection activities. If you have a pending lawsuit, a garnishment, or are at risk of foreclosure, the automatic stay is the best way to relieve you of outstanding debt. In this case, our Flexer Law offices will alert the creditor’s attorney that you have filed for bankruptcy and attempt to stop any garnishment as quickly as possible.
The automatic stay is the most critical step after filing for bankruptcy. In some cases, creditors can lift the automatic stay. If you’re behind on your mortgage when you file for Chapter 7, your lender will likely request to lift the automatic stay so they can continue on foreclosure. Secured creditors, such as home or car lenders, often file this motion when the debtor fails to make payments and there isn’t enough available equity to cover the loan. If the debtor can prove that there is sufficient equity to repay the loan and that the lender isn’t at risk of financial loss, the bankruptcy court might deny the order to lift the stay.
It’s uncommon for an unsecured creditor to file a motion to lift the automatic stay. However, the court can grant the request if the unsecured debts aren’t discharged in Chapter 7. Many creditors will wait until the end of the bankruptcy case to continue collecting since most Chapter 7 cases only last four months.
If your creditor submits a request to lift the automatic stay, you’ll receive a notice and hearing. The creditor must present a valid reason to the bankruptcy court to lift the stay. Otherwise, they won’t grant their request.
What If My Creditor Violates the Automatic Stay?
If a creditor is informed of your bankruptcy case and still tries to collect outstanding debt, they violate the automatic stay and are at risk of being sued. Ensure you let your bankruptcy attorney know if you’re still receiving collection calls or bills after creditors have been advised of your Chapter 7 filing.
There’s a brief period between filing for bankruptcy and when your creditor is informed of your case. Typically, this is when you’ll receive collection calls because the creditor doesn’t know yet. In this case, you should let them know that you’ve filed for bankruptcy and be prepared to provide your case number, and collect the creditor’s name and date and time of the call.
In most cases, knowing your Chapter 7 case is all it takes for creditors to understand that the automatic stay protects you and stop making collection calls. Anything afterward is an intentional violation of the automatic stay and subject to legal action.
Exceptions to the Automatic Stay
There are a few exceptions to the automatic stay order when you file for chapter 7 bankruptcy.
1. Multiple Bankruptcy Filings Within a Year
If you file for bankruptcy more than once within a year, the automatic stay order only stays in effect for 30 days. In some cases, it doesn’t go into effect at all. It’s essential to understand if you’re eligible for an automatic stay in your Chapter 7 bankruptcy case.
2. Outstanding Debt
A bank, savings and loan, credit union, or other institution where you have a deposit is allowed to use it to offset the funds in your account when you filed a bankruptcy petition against any outstanding debt you have with them. Therefore, if you have a checking or savings account with an institution where you also have debt, you should remove your funds if you want to keep them. We recommend that you don’t make any further deposits into the account or write any additional checks from an account with outstanding debt. Instead, you should consider closing that account and opening a new one with a different financial institution.
3. Utility Disconnections
A utility company can’t collect the money you owe them from the past, but they can make you pay a new deposit within twenty days. For your active utilities, you’ll still have to pay your monthly bill after you file Chapter 7 bankruptcy. However, suppose you’re behind on your utility payments and want to include the past due balances in Chapter 7. In that case, you should advise your attorney that you wish the court to set a reasonable deposit for new service within twenty days of filing. Suppose the utility company requires you to pay a high deposit. In that case, you should advise your bankruptcy attorney immediately, so they can file a motion on your behalf to request a reasonable utility deposit.
Middle Tennessee’s Top Bankruptcy Attorneys
The automatic stay is a significant advantage to filing for Chapter 7 because it immediately relieves you from your creditor’s debt collections. Navigating the bankruptcy process can be daunting. Enlisting the help of a trusted attorney is invaluable and will ensure a smoother process.
Flexer Law has been serving the legal needs of Middle Tennessee residents since 1981. Our experienced bankruptcy attorneys will work diligently on your behalf to provide the best financial outcome for you.
We have three office locations throughout Middle Tennessee to accommodate your legal needs. Contact us for a free consultation, and we’ll find the best solution to get your financial life back on track.