Using Bankruptcy's Automatic Stay to Protect People in Chicago

People in Chicago who need relief from creditor harassment and wage garnishment can use bankruptcy's automatic stay to make it stop.

2012-01-25

January 25, 2012 (Press-News.org) For many people struggling with debt in Chicago, bankruptcy is a great way to get out of debt. After all, bankruptcy can be used to eliminate a number of troublesome debts, including high interest credit cards, medical bills, and loans while allowing most people to keep almost all of their assets.

What people may not realize is that they can get protection from wage garnishment through bankruptcy as well. A Chicago wage garnishment attorney can help stop these garnishments by utilizing an important feature of bankruptcy, the automatic stay. This article will describe what the automatic stay is, how it protects individuals who have filed bankruptcy, and how it works to promote the fresh start promised by the U.S. Bankruptcy Code.

What is the Automatic Stay?

The automatic stay is a legal injunction that comes into effect immediately upon filing a bankruptcy petition. It stops all lawsuits, including judgments and garnishments and prohibits collection agencies and other debt collection companies. The automatic stay is the single most important tool for stopping creditor harassment.

How Does the Automatic Stay Protect People?

The automatic stay provides people with peace of mind and stability in preparing for post-bankruptcy life. For most people, the automatic stay will remain in effect until a bankruptcy discharge is granted. All collection efforts must cease when the automatic stay goes into effect, and creditors may not contact a bankruptcy individual by telephone or send letters demanding payment. All communications for the individual should be sent through the individual's lawyer.

A creditor may be held in contempt for violating the automatic stay, and the bankruptcy code allows individuals to recover money damages, (including costs and attorney's fees, and punitive damages) for such transgressions. Creditors who contact an individual represented by counsel also violate the Fair Debt Collection Practices Act (FDCPA). Creditors are notified by the court that the individual has filed for bankruptcy protection and are given specific instructions on how to pursue a claim against the bankruptcy estate. As such, creditors can be held strictly liable for contacting individuals in the midst of a Chapter 7 bankruptcy or while completing a Chapter 13 plan.

Also, judgments may not be enforced against property of the estate. The automatic stay stops any act to create, perfect, or enforce a lien against such property as well. This means that foreclosure actions and repossession efforts must cease. Foreclosures that have been initiated, but not completed, are suspended under the bankruptcy code. However, if a sheriff's sale or other foreclosure sale has been completed prior to the bankruptcy being filed, its status will remain unaffected. Individuals who want to save their homes must file for bankruptcy prior to the sale of their home.

In addition to stopping collection efforts, the automatic stay stops all litigation against the individual, so any pending lawsuits against an individual are suspended. Collection proceedings in United States Tax Court are stayed and creditors are prohibited from initiating lawsuits based on prepetition debts. Any claims against the individual are now claims against the bankruptcy estate, and must be pursued in bankruptcy court. However, creditors may sue third party co-signers and guarantors who are not part of the bankruptcy suit.

How Long Does the Automatic Stay Last?

The automatic stay usually remains in effect until one of three instances occurs: (1) the bankruptcy case is closed; (2) the case is dismissed; or (3) the discharge is granted or denied. Because of the short duration of Chapter 7 cases, the automatic stay commonly remains until the discharge is granted at the end of the case. In Chapter 13 cases, the automatic stay is terminated once the plan payments are completed and the discharge is granted. In Chapter 11 cases, a discharge is entered (and the automatic stay ends) when the reorganization plan is confirmed.

However, creditors may ask the bankruptcy court to "lift" the automatic stay and allow collection actions to continue if they believe that the automatic stay is not being used properly, and is merely a delaying tactic. The bankruptcy code allows the court to grant such relief if there is inadequate protection of a creditor's interest in collateral, such as a car or other vehicle that is being financed, or in cases where real property serves as collateral and the individual has no equity in the property. In these instances, the court may find that the property is not necessary to an effective reorganization.

The Automatic Stay Provides a Wide Array of Protections

Ultimately, the automatic stay protects individuals from litigation and creditor harassment, while protecting their property. It also protects individuals from being found in contempt for failure to pay child support, and from losing utility services, unemployment benefits. Most importantly, wages are protected from multiple garnishments.

If you have questions about how an automatic stay could help you, you should speak to an experienced Chicago bankruptcy attorney who can advise you of your options.

Article provided by Law Offices of Chad M. Hayward PC
Visit us at www.haywardlawoffices.com

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