Keep Creditors Away With an Automatic Stay
Creditors and collection agencies can be relentless. They can call at all hours of the day. Sometimes they might even resort to illegal behavior like threats and intimidation. It is hard enough to get out from under debt without pressure from creditors. As a debtor, you have rights. As a debtor filing for bankruptcy, one of your rights is an automatic stay protecting you from collection efforts.
Filing for bankruptcy offers protection from creditors. Bankruptcy laws offer protections to allow debtors a chance to rebuild their lives. The trustee also needs time to look at your assets and decide how to proceed with the bankruptcy. Attempts by creditors to collect on debts would interfere with the bankruptcy process. For this reason, bankruptcy courts provide debtors a form of injunctive relief called an automatic stay.
What is an Automatic Stay?
An automatic stay is a court order that prevents creditors from trying to collect on a debt. The court grants an automatic stay once the debtor files a bankruptcy petition. This gives you breathing room while the case proceeds. It also prevents creditors from taking property or assets that might be discharged as a result of the bankruptcy.
The automatic stay typically lasts for the length of the bankruptcy case, or 30 days if the court dismissed a previous case you filed in the past year. Once the case is concluded, you would no longer have to pay a debt that is discharged. Creditors with debt that was not discharged would then be free to collect that debt from you.
Creditors can petition the court to lift the stay in some circumstances. Your attorney or the trustee could petition the court to extend the stay.
While the stay is in effect, creditors should stop their collection efforts. The stay prevents them from repossessing vehicles, real estate, or other property. Garnished wages should be released.
An automatic stay is not absolute. In some cases, creditors can ask the court for relief from the automatic stay. This means that they would be able to collect on the debt.
The situation may be more complicated for secured debt. For example, you may have secured a loan by putting your house or car up as collateral. Typically, a creditor cannot repossess collateral while the automatic stay is in effect. However, a secured creditor may have more legal options if your assets are collateral for the debt you owe them.
In short, the purpose of the bankruptcy process is to determine what debts you are or are not responsible for paying. Creditors should not be able to get around this process without the court’s approval
What an Automatic Stay Does Not Do?
An automatic stay does not protect against other forms of legal action. It will not prevent criminal charges, lawsuits, or the suspension of your driver’s license. You will still have to pay domestic support, such as child support or alimony.
An automatic stay in your bankruptcy case would not prevent you from collecting money that other people owe you.
Section 362 of the U.S. bankruptcy code outlines the rules for an automatic stay. The code is complex, with limitations and exceptions. A bankruptcy attorney can help you understand and interpret the bankruptcy code.
Violations of an Automatic Stay
If creditors continue to try to collect on debt despite the stay, they could face penalties. Actions that violate the automatic stay could include making threats, withdrawing funds, or repossessing property. If a creditor willfully violates an automatic stay, they could be held in contempt.
If creditors violate the automatic stay, your bankruptcy attorney could file a lawsuit against the creditor. This is called an adversary proceeding and is separate from the bankruptcy case. A judge could rule that the creditor must return money or property, pay legal costs, or pay damages.
Tennessee law places other limits on what creditors can do to collect on debts. The Fair Debt Collection Practices Act defines some tactics as harassment. Even if the creditors are not bound by a stay order, their behavior could be illegal. Don’t be intimidated by scare tactics. Be sure to understand your rights and seek help.
If you have questions about the automatic stay, or if creditors have been harassing you, let us help. At The Pope Firm, we have experience with fair debt collection practice law in the state of Tennessee. Schedule a free consultation on our website, or call our offices in Jackson City, Kingsport, or Knoxville today.
The Different Types Of Bankruptcy
Depending on your situation, there are different types, officially known as “chapters” of bankruptcy, that you can file for. These different chapters of bankruptcy provide different results for different cases, and it’s important to have some knowledge on these chapters before filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a commonly filed for chapter of bankruptcy and is intended for use by low to moderate income individuals with more debt than they’ll ever be able to repay. If properly executed, this chapter of bankruptcy can eliminate most or all of a person’s unsecured debt. If you’re eligible, Chapter 7 could be a great debt relief solution for you.
Chapter 13 Bankruptcy
Another great debt relief solution is Chapter 13 bankruptcy, that works great for people that aren’t eligible for chapter 7 bankruptcy. This chapter allows the debtor, or person that has borrowed money, to restructure their payment plans to be more manageable. At the end of this payment plan, most unsecured debts are discharged, or eliminated. This is sure to provide some much-needed breathing room for those people that feel in over their head, and are in need of some debt relief.
If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.
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Frequently Asked Questions
Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.
There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.
Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.
Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.
Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.
There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.
What are the Differences Between Chapter 7 and Chapter 13?
The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.
Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.
What Other Types of Bankruptcy Are There?
Two other types of bankruptcy are Chapter 11 and Chapter 12.
Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.
Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.
A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.
Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.
Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.
How bankruptcy affects business depends upon the type of bankruptcy filed.
Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.
During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.
Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.
Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.
When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.
- Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
- Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
- Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
- Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
- Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.
Declaring bankruptcy wipes out many debts, but not all.
What Debts are Usually Covered by Bankruptcy?
Bankruptcy can clear most unsecured debts, including:
- Credit card bills
- Medical bills
- Overdue utility payments
Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.
What Debts Are Not Covered by Bankruptcy?
- Child support
- Alimony obligations
- Those related to personal injury or death in a drunk driving case
- Any debts not listed on your bankruptcy papers
No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.
What Debts May Be Covered?
Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.
Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.