One of the most important aspects to a Chapter 13 Bankruptcy filing is what is called the “automatic stay”. Simply stated, the automatic stay freezes the creditors’ collection efforts against your property. Our goal in this post is to provide some information on the more interesting aspects of this automatic stay and how you can use it to your advantage.
When you file your Chapter 13 Bankruptcy Petition you will have what is known as a “filing date”. This is simply the date that your paperwork is received by the bankruptcy court. This date is very important because this is the instant when the automatic stay comes into force. Anything that occured before your filing date will be referred to as “pre-petition” and everything that happens after your filing date will be referred to as “post-petition”. It sometimes helps to think of the automatic stay as putting a protective bubble around all of the assets you own as of the filing date of your Chapter 13 Bankruptcy. This includes your bank accounts, wages, house, personal property, and cars.
This automatic stay provides very powerful protection for your property. Your bank accounts can no longer be garnished, your wages can no longer be garnished, your house can no longer be foreclosed, and your cars can no longer be repossessed. If you had wage garnishments, these wage garnishments must be released. If you were facing foreclosure, that foreclosing proceeding must be paused (referred to as “stayed”). If your car was going to be repossessed, this repossession must also be stayed.
To better illustrate these points we will speak about a hypothetical client and we will assume he is behind on his mortgage and facing wage garnishments and behind on some car payments. If this client were to file a chapter 13 bankruptcy he would instantly be protected by the automatic stay. This would immediately stop the wage garnishments and provide immediate relief. The automatic stay would also stop the foreclosure and we could propose a chapter 13 repayment plan to pay the behind mortgage payments (also called “arrears”) over a period of three to five years. The reason the foreclosure is stopped is because of the automatic stay protecting this client’s house. In the same fashion this client’s car repossession would also be stopped and he would have three to five years to catch up on the back car payments. As we see this is some amazing stuff.
If this client later was to fall behind on his mortgage payments or car payments, and we hope this doesn’t happen, then the bank would need to ask permission from the bankruptcy court to foreclose on the house or repossess the car. The way the bank requests this permission from the bankruptcy court is by filing a Motion for Relief from Stay.
As always remember that this post is meant to provide general information about chapter 13 bankruptcy and the automatic stay and is not legal advice. Every situation is different and you should consult an attorney.