One of the benefits of filing for either Chapter 7 or Chapter 13 bankruptcy is automatic stay protection. An “automatic stay” is a legal stopping of all collection efforts that goes into effect as soon as you file for bankruptcy. Collection agencies, creditors, and even government entities may not attempt to collect in any way. This means they may not call and harass you, and they may not file a lawsuit to collect the debt or continue a lawsuit to garnish your wages. People that are dealing with creditor harassment from multiple sources, or who are faced with their utilities being turned off or their wages being garnished, may find the automatic stay helpful. If you are in this situation, you should not hesitate to contact Montgomery bankruptcy attorney Charles Grainger to discuss your options.
Certain creditor activities are delayed rather than stopped by the automatic stay. If you are behind on gas, electric, or water payments and are facing a threatened shut-off from a utility company, a Chapter 7 automatic stay stops the utility company for 20 days. This delay may be all you need, but you should be aware that the relief is only temporary.
Another example is where a pay day loan company is holding a signed check for collateral. The pay day loan company may not maintain a lawsuit or attempt any form of collection except that they may attempt to cash or deposit the check being held as collateral for the loan. This is based upon the legal principle that the automatic stay does not prevent a creditor who is in possession of collateral for a loan from liquidating that collateral. We recommend our clients “stop payment” on such checks prior to filing and consider changing banks altogether.
Closely related to utility debt are debts associated with the purchase of a home. Many homeowners who face foreclosure try to file for bankruptcy to get an automatic stay. This can prove problematic for people who file for bankruptcy repeatedly. Foreclosure of a home will only be stopped for 30 days upon filing for bankruptcy if you previously filed for bankruptcy in the same year and your case was dismissed. If you have had two or more bankruptcy cases dismissed within the last year, the automatic stay will not go into effect. However, if you initially file under Chapter 7 but your income is high and you re-file under Chapter 13, the automatic stay will go into effect even if you are a repeat filer.
A few creditors are not stopped by an automatic stay. For example, an ex-spouse may continue to attempt to collect spousal support or child support, or may even file for the first time to collect these.
However, the automatic stay will apply to student loan collection efforts through the bankruptcy process. Most people cannot actually discharge their student loans during bankruptcy. The only way the court will discharge student loan debt is if you can show it causes you and your dependents “undue hardship.” Poverty is not enough to meet this standard. It is most likely you will have to continue paying off student loans after the bankruptcy and automatic stay are over. However, the delay created by the automatic stay in having to repay student loan debt can be helpful for some people.
There are also instances in which a creditor can ask that the automatic stay be lifted. One scenario in which this request is likely to be successful is if you are facing eviction from a rented home. Landlords who claim that you’ve used illegal drugs or otherwise endangered the property are likely to be successful in asking the court to lift the automatic stay. Similarly, an automatic stay will only pause rather than stop foreclosure proceedings if it is not feasible for you to afford to pay what you are behind on your home through a Chapter 13 payment plan while at the same time making your normal house payments as they become due. The lender for your mortgage can ask the court to lift the stay and is likely to be successful.
Charles Grainger is an experienced Montgomery bankruptcy lawyer who can advise you on whether an automatic stay can help in your particular situation. He also can file for bankruptcy on your behalf and help you explore alternative solutions to your financial troubles depending on your particular situation. We serve clients in South-Central Alabama, from our offices located in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a consultation at no cost to you.