What is the bankruptcy stay and what can it do for me?

What is the stay?– The bankruptcy stay is covered under section 362 of the Bankruptcy Code.  It is really an injunction that is created automatically when a person files for bankruptcy.  When it comes into effect after the filing it prevents anyone from interfering with the bankruptcy filer or their property.  It means that a creditor cannot attempt to collect on your debts or put liens any of your property after a bankruptcy has been filed.  Your property is therefore completely protected and beyond the reach of creditors once you file for bankruptcy. 

The stay does lift after a bankruptcy is discharged.

What it does– You must realize that this is a powerful tool for you in Bankruptcy.  If any creditor has a wage garnishment then it must stop.  A creditor cannot commence a court case once a stay in place and if a creditor has a court case currently against you to collect a debt then they must stop going forward with that case.  They cannot attempt to contact you in any way to collect money you owe them once the stay is in place.  If you have a foreclosure started by a lender then that must also stop and a finance company can’t attempt to repossess your car once a stay is in place.  All actions taken by a creditor to collect a debt after the stay is in place are void and of no effect.

What it does not do – Some debts such as child or spousal support are unaffected by the stay.  Criminal proceedings will also not be stopped by the stay.  You will still have to pay your spousal and child support and criminal penalties in spite of the filing of a bankruptcy.

Motion for relief from stay – If you financed a house or a car then the creditor will file a motion for relief from stay once you file bankruptcy.  If it is granted by the court this motion will allow the secured creditor to get his property back.  These motions take a while to be granted by the bankruptcy court and they can be opposed by your attorney.  So the stay can delay even the surrender of a secured asset like a house or a car.

Personal liens–  A stay won’t remove a lien that has been placed before you file.  A lien put on your credit report can be removed but it requires your attorney to file a special motion in the bankruptcy to do so.  Even if you leave that lien on your credit report the underlying debt is discharged in the bankruptcy and the creditor cannot try to collect on it.

Liens on your home–  These are much more troublesome liens and in a chapter 7 you cannot remove them.  They will remain attached to the house until you satisfy them or let the home go with a foreclosure or deed in lieu of foreclosure.  It is important to file the bankruptcy before these liens attach to your home.

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