What Happens if A Creditor Files a Relief From the Automatic Stay?

Posted on March 24, 2013 by Staff Writer

One of the most important protections a debtor automatically receives upon filing for bankruptcy is the “automatic stay.” The automatic stay is imposed upon all of a debtor’s creditors preventing those creditors from actively collecting on a debt. The stay binds all creditors, not just unsecured creditors. Upon filing for bankruptcy protection, a creditor can no longer harass, garnish wages, levy bank accounts, foreclose on a property, repossess a vehicle, or even pursue an eviction. The stay remains in effect while the bankruptcy is pending but is lifted once the bankruptcy case is discharged. At that point, the discharge acts as an injunction from your creditors from actively collecting on those debts that were discharged in the bankruptcy.

However, the stay can be lifted during the bankruptcy upon motion by a creditor. Motions to lift the stay are not as common as one would think. When a creditor files a motion to lift the automatic stay, the debtor is entitled to notice and a hearing. The burden is on the creditor to convince the bankruptcy court that there is a very good reason to lift the stay, and the court is predisposed to continue the bankruptcy protection. For instance, the court will not lift the stay when an unsecured debt will be included in the debtor’s discharge.

Generally, secured creditors are the most common type of creditor that would seek to lift the stay. (A “secured debt” is a debt that is secured to a form of collateral, i.e. a mortgage or car loan.) Secured creditors often file motions to lift the stay when the debtor is not making payments. Since property used as collateral must be paid for or returned during bankruptcy, the court will normally lift the stay unless the debtor can bring the payments current or show another good reason to deny the motion (for example, the debtor will use one of the available methods for dealing with secured debts in Chapter 7 bankruptcy, or the debtor has provided for payment of the debt in a Chapter 13 repayment plan). For example, if you are behind on your mortgage when you file for Chapter 7 bankruptcy, your mortgage lender is likely to ask the court to lift the stay so it can continue with foreclosure.

A landlord may also seek relief in order to evict for non-payment of rent. A bankruptcy debtor’s rent obligation is divided on the bankruptcy filing date into pre-bankruptcy and post-bankruptcy debts. Pre-bankruptcy rents are dischargeable, and post-bankruptcy rents are not dischargeable and not subject to the automatic stay. This means that while the automatic stay would prohibit the landlord from collecting on unpaid pre-bankruptcy rent, the landlord may evict if post-bankruptcy rents are not paid.

When will my Creditors Stop Calling Me?

Posted on February 22, 2013 by Staff Writer

There are two different events which will stop creditor calls. First, when you hire our law firm you will be able to refer your creditors to us. Once you are represented by a law firm, creditors are no longer to contact you directly but are to communicate to you through your attorney.

We recommend our clients tell their creditors: “I am filing for bankruptcy. I have an attorney and he told me not to talk to you. If you have any questions please call his law office” and then just hang up the phone.

In most instances your creditors really will call our law firm and verify that you are a client. This will stop 99% of the creditor calls. However, pay-day and title loan companies are notorious for continuing the calls until the bankruptcy is actually filed.

Second, once your bankruptcy is filed it becomes illegal for creditors to continue contacting you in an attempt to collect on the debt. Because as soon as a bankruptcy is filed the Automatic Stay of Protection goes into effect. This Automatic Stay of Protection prevents creditors from making any collector efforts. Creditors will be prevented from contacting you in any way, they will not be able to mail, email, or call.

So if you would like to learn how to stop the harassing phone calls, make an appointment to meet with one of our attorneys.

Will Any Creditors Appear at my 341 Hearing?

Posted on February 15, 2013 by Staff Writer

It is highly unlikely that any creditors will appear at your 341 hearing. Though creditors are given the opportunity to appear and ask questions they rarely do so.

Approximately 30 to 45 days after your bankruptcy case is filed, you will need to attend a 341 hearing. The hearing gives creditors an opportunity to ask questions of you with regard to the information listed in your petition and schedules. However, in most cases, only you, your attorney, and the bankruptcy trustee actually participate in the hearing. I would estimate that in less than one percent of 341 hearings does a creditor actually appear.

What happens if a creditor does appear?

Once your trustee is through questioning you, he or she will ask if there are any creditors present who would like to question the debtor(s). If there are any creditors present they will come and sit at a specially designated table. Once they have introduced themselves and who they represent they will begin their questioning.

Usually the creditor will ask you specific questions about the paperwork that was filed in your case. For instance, they might ask how you came to the value of a particular asset or why an asset they believe you still own was not listed. This is one more reason why you want an experienced bankruptcy in your corner when going through the bankruptcy process.

Why would a creditor appear?

Creditors usually appear in anticipation of filing an Adversary Proceeding. An adversary proceeding is a form of lawsuit that transpires within a bankruptcy. Creditors typically file an adversary proceeding when they want to convince the bankruptcy court that the debt you owe should still be paid even though you’ve filed bankruptcy. So if a creditor appears at your 341 hearing there is a good chance that they will file an Adversary Proceeding against you.

Why do creditors rarely appear?

First, it’s very expensive for a creditor to hire a bankruptcy attorney to represent their interests in your bankruptcy. Often the attorneys that represent creditors charge $400 – $500 an hour. Because it is so expensive for the creditors to hire an attorney they rarely do so unless the argument is over a lot of money and they feel they have a good chance of winning an Adversary Proceeding. The whole purpose of bankruptcy is to give debtors a fresh start and so courts are not inclined to require repayment of a debt by a bankruptcy filer except in extraordinary cases.

Secondly, your creditors must have a legal argument for why you should have to repay them. For instance, American Express can’t argue—“this person owes us money and we want it back”—that’s not a legal argument. Typically, creditors don’t have a legal reason for why you should repay them and therefore they don’t show to your 341 hearing.

As you can see bankruptcy is a very complex area of law and having an attorney in your corner can make the whole process much more enjoyable.

Am I allowed to keep any credit cards I had prior to filing bankruptcy?

Posted on February 11, 2013 by Staff Writer

Most likely you will not be able to keep any of your credit cards after filing bankruptcy. If a credit card has a balance then it must be listed in the bankruptcy. The credit card company will then be notified that you filed for bankruptcy and close down your account. Now, if the balance on a specific credit card is zero then they do not have to be listed in the bankruptcy and won’t be notified when you’ve filed. However, if they check your credit at a later date and see the bankruptcy then they will most likely close out the card.

As soon as a bankruptcy is filed an Automatic Stay of Protection is created. This Automatic Stay prevents creditors from ever attempting to collect from you again. The penalties for violating the Automatic Stay are very harsh and this is why your credit card company will close out your account—they don’t want to be accused of attempting to collect money from you after filing bankruptcy.

Don’t worry; you will be able to get another credit card after filing for bankruptcy. Most clients report that they are inundated with credit offers soon after filing.

What happens if I am facing garnishment?

Posted on February 4, 2013 by Staff Writer

Before a creditor can garnish your paycheck, they must have already served you with a Summons and Complaint. The creditor then must obtain a judgment against you. This judgment may be obtained either through default or through actual litigation. Once a creditor has a judgment against you, they may go back into court and ask the judge for a Writ of Garnishment. This Writ of Garnishment is then sent to your employer, requiring them to send 25% of your gross paycheck directly to the creditor. Your employer must send the 25% of your pay to the creditor or your employer will be responsible for reimbursing the creditor whatever money they should have sent them that they did not. It’s important to note that this is 25% of your gross or pre-tax dollars. This is roughly 40% of your total take home pay!

Once a creditor begins garnishing your check there are only two ways to stop it. 1) Pay the creditor in full or; 2) file for bankruptcy. The minute you file bankruptcy, the garnishment immediately stops. So it doesn’t really make sense to let your garnishments go for several months and then file bankruptcy. If you’re going to file bankruptcy then don’t wait until you’ve been garnished thousands of dollars before filing.

Many people struggle to live off of 100% of their paycheck let alone 75%. So if you’ve been served with court papers don’t procrastinate, call us today! Let us stop your garnishment before it even starts!