The Automatic Stay | Bankruptcy Done Right
A Philadelphia bankruptcy lawyer uses federal law to stop all forms of creditor harassment.
A Closer Look at Bankruptcy’s Automatic Stay
Some people turn to civil judges when creditors are closing in. Technically, judges can stop things like foreclosure and wage garnishment. But judges only take such action if there is clear evidence of lender fraud. Additionally, the effect is limited to the words in that order.
On the other hand, Section 362 of the Bankruptcy Code automatically stops all forms of creditor harassment, up to and including repossession and foreclosure. Debtors don’t need to show fraud, negligence, or anything else. They simply have to file their voluntary petitions.
However, the Automatic Stay is not a magic wand. Instead, a Philadelphia bankruptcy lawyer must follow the rules very carefully. Many of these rules are unwritten. So, if you just file a petition and hope for the best, the Automatic Stay might not completely protect your family from aggressive creditors.
Stopping Creditor Harassment
Beginning around 2010, judges and bureaucrats have eroded many of the consumer debt protections in federal law. But the Automatic Stay still prevents:
- Wage garnishment,
- Lien placement,
- Creditor harassment, and
Section 362 only has a limited effect in some areas. For example, timing is important in eviction matters. In most states, legal eviction is a three-step process. First, the landlord files a legal action. Second, there’s a court date. Third, the judge signs an order. As long as you file before step three, the Automatic Stay usually applies.
Sometimes, the opposite issue comes up, because the Automatic Stay is so comprehensive. The Bankruptcy Code prohibits creditors from communicating with debtors. To stay on the safe side, many banks interpret that prohibition very broadly. They stop sending statements and also suspend ACH-type payment arrangements. Debtors should be aware of these things and be ready to deal with them.
Mostly because of the pandemic, foreclosures hit a record low in 2020. Most experts predict they will increase exponentially in 2021 and 2022. As mentioned, bankruptcy stops foreclosure. However, there are some things to be aware of.
Notice is usually important. The Automatic Stay is only effective if the creditor, or the creditor’s agent, receives actual notice. Although such conduct is illegal, many banks buy and sell mortgage notes without informing their customers. So, the entity which processes your payments might not hold the note.
Furthermore, if a foreclosure sale is eminent, non-bank organizations, such as auctioneers and sheriff’s offices, become involved. These parties need actual notice as well. Frequently, a Philadelphia bankruptcy lawyer must do some digging to fulfil this requirement.
In general, foreclosures are rather easy to stop, but they are very hard to undo. Once homeowners fall behind, banks normally accelerate mortgage loans and stop accepting partial payments. After two or three months, the homeowner is so far behind that foreclosure is almost inevitable outside bankruptcy. So, you need to act fast if the bank threatens to take your home.
Section 362 Limits and Philadelphia Bankruptcy Lawyers
Notice is not the only Automatic Stay limit. If you filed a “false start” bankruptcy within the last six months, creditors usually press for limits based on the serial filer rule.
Sometimes, people file bankruptcy because of job loss or another financial storm, but they are not able to finish it. Unfortunately, the law does not distinguish between these “false start” bankruptcies and people who game the system by filing repeatedly to frustrate creditors.
If you have filed bankruptcy in the last six months, the Automatic Stay could still take effect, depending on the number of prior filings and a Philadelphia bankruptcy lawyer’s response.
- One Prior Filing: In these situations, the Automatic Stay goes into immediate and full effect if an attorney files a motion to extend the Stay. Most judges grant these motions without holding a hearing or even scrutinizing them very closely.
- Two Prior Filings: If you have filed bankruptcy twice in the previous six months, a Philadelphia bankruptcy lawyer can still file a motion to extend the Stay. This motion must cite good cause, a general phrase which usually means any legitimate financial reason. If the judge grants the motion, the Stay might only have a limited effect.
- Three Prior Filings: Most judges assume that these individuals are serial filers. There is not much a Philadelphia bankruptcy lawyer can do in terms of the Automatic Stay. The other benefits of bankruptcy, like property protection and debt discharge, are usually still available.
Property protection varies in different jurisdictions. Most states allow most debtors to keep their houses, cars, retirement accounts, and other essential assets. Discharge eliminates the legal obligation to repay most credit cards, medical bills, and other unsecured debts.
Bankruptcy’s Automatic Stay is not always automatic. There are rules to follow and loopholes to close. For a free consultation with a bankruptcy lawyer, contact Bankruptcy Done Right. We have decades of experience in consumer bankruptcy and related areas.