When you want creditors to stop harassing you, filing for bankruptcy can do the trick. The automatic stay immediately puts a stop to collection activities, such as telephone calls, foreclosures, and lawsuits. However, multiple filings in a years' time suggest that a manipulation of the bankruptcy system is taking place. So if this is your second or third filing this year, you'll have to demonstrate that you're filing for bankruptcy in good faith if you'd like the full protection of the automatic stay.
To learn about the automatic stay and its reach, see Bankruptcy's Automatic Stay.
The automatic stay usually goes into effect when the debtor files the official bankruptcy paperwork. It stops creditors from engaging in most collection activities and remains in place until the court or debtor dismisses the case, or the debtor receives a discharge (debt forgiveness).
Creditors still receive protection if the automatic stay is in effect. The debtor's property remains in a bankruptcy estate controlled by the bankruptcy trustee charged with overseeing the case, so it's protected from the reach of other creditors. In a Chapter 7 case, the property will then be sold and the funds distributed according to the bankruptcy laws. In Chapter 13, the creditors get paid through the debtor's monthly repayment plan payments.
However, the income the debtor makes after the bankruptcy filing date, as well as any property acquired with that income, would be at risk. For instance, although a creditor wouldn't be entitled to seize money in a bank account on the filing date (that would be in the bankruptcy estate), the creditor could garnish wages (deduct money from a paycheck) earned after the filing of a Chapter 7 case. A Chapter 13 creditor can't do these things, but it's not because of the automatic stay--it's because the creditor is held to the agreement in the Chapter 13 repayment plan.
How long the automatic stay will last—or if it will attach at all—will depend on the number of times the debtor filed in the past year.
Even so, the debtor can ask the court to put the stay in place or continue it beyond the 30-day period. A successful motion will demonstrate that the debtor isn't using the bankruptcy system in bad faith.
Before the court grants your automatic stay request, you'll need to do the following:
If you run into a time problem, your attorney might be able to obtain an "Order Shortening Time" which will allow you to provide less notice than usually required.
When evaluating your request to grant or extend the stay, the court will presume initially that your filing is in bad faith. To win, you'll need to convince the court that the case dismissal was due to some reason other than a fault of your own.
Example. Suppose that the court dismissed your case because you failed to amend your bankruptcy petition after the bankruptcy trustee noticed that the name on your bankruptcy petition didn't match your driver's license and Social Security card. If you adjusted the paperwork, but your attorney forgot to file it, you'd likely win the motion. You didn't cause the error. If, however, you failed to make the change while representing yourself, the judge might question your motives (and possibly suspect that identity theft was at play). You won't meet the good-faith requirement.
A judge might also be sympathetic to your cause if the dismissal occurred because of a circumstance beyond your control. In your motion, you'll want to prove you failed to file documents or failed to appear at the 341 meeting of creditors because of an unexpected event, such as a sudden illness or natural disaster.
Example.Suppose that the court dismissed your case because you missed the 341 meeting of creditors. As part of your motion, you include a declaration (statement signed under penalty of perjury) from your doctor explaining that you were admitted to the emergency room the night before and remained in the hospital for an extended period. The court would likely believe you had no way to inform the bankruptcy trustee that you couldn't appear and grant your motion. If, however, you had a scheduling conflict or just forgot, it's less likely that you'd prevail.
If your filing behavior has the appearance of attempting to manipulate the bankruptcy system, the judge won't be inclined to grant your motion. The court frowns on debtors who use repeated filings to thwart valid creditor actions.
For example, bankruptcy efficiently stops foreclosure, eviction proceedings, and other types of creditor actions that can cause significant distress. Some filers are known to repeatedly file and dismiss bankruptcy cases for no other reason than to delay such proceedings. Doing so is not considered a proper use of the bankruptcy system and the court looks for such cases.
Here's what a bad-faith case might look like.
In a previous bankruptcy matter, a creditor asked for permission to proceed with a foreclosure, repossession, lawsuit, or eviction by filing a motion to lift the automatic stay but the debtor dismissed the case before the court could hear the creditor's motion. When the foreclosure or other action is again imminent, the debtor files another case to stop it. A creditor can suffer significant harm as a result of the delays, especially if the debtor is using other stalling techniques between bankruptcy filings.
To learn about other exceptions to the automatic stay, see our Bankruptcy's Automatic Stay area.
Need professional help? Start here.