What is the Immediate Impact of Your Chapter 13 Filing?
The minute you file your Chapter 13 case, something called the “automatic stay” goes into force. The automatic stay functions as your most powerful source of protection from creditor action or harassment.
The automatic stay is set out at Title 11 of the United States Code, Section 362. This Code provision provides that upon the commencement of a case, all creditor action against a debtor must come to an immediate stop.
Your Chapter 13 filing triggers the automatic stay and stops:
- any pending foreclosure
- any pending vehicle repossession
- any wage garnishment
- collection phone calls, letters and personal contact
What Happens if a Creditor Takes Action Against Me
Without Knowledge That I Have Filed Chapter 13?
Frequently we file Chapter 13 cases at literally the last minute before a foreclosure. Or we may file knowing that the repo man is circling your house. What happens if the foreclosure sale is completed or your vehicle is picked up before the official notice of filing goes out in the mail?
If your case was filed even a minute before the adverse action you are safe. Any foreclosure sale would be void. The car lender would have to return your car. Creditors are bound by the automatic stay even if they don’t know that it exists.
If a creditor takes action against you without actual knowledge of your Chapter 13 filing, the law gives that creditor a reasonable time to undo the damage and return your property or otherwise stop its now improper conduct. If a creditor knows about the stay, but persists in its collection efforts, you have the right to sue that creditor for damages arising out of the stay violation.
Are There Any Exceptions to the Automatic Stay?
Yes, there are a few exceptions to the automatic stay. Over the years, Congress has added several very specific exceptions whereby creditors are permitted to continue collection activities against you. Examples of exceptions to the automatic stay include:
court actions to establish or collect child support
certain tax collection activities
Section 362 sets out many of these exceptions to the automatic stay.
Special Rules for Repeat Bankruptcy Filings
One of the most significant changes in the October, 2005 changes the bankruptcy laws has to do with the reach of the automatic stay in second and third (or more) Chapter 13 filings. Under the new rules, if you file a second Chapter 13 case within 1 year of your first case, the automatic stay protecting your property from foreclosure will automatically terminate 30 days after filing unless you and your lawyer file a Motion and convince a judge to extend the stay.
For a 3rd or subsequent filing within one year, no stay goes into effect at all and Chapter 13 will not serve to stop a pending foreclosure. You can read more about the new limits on the reach of the automatic stay for repeat bankruptcy filers in attorney Rachel Foley’s informative blog post about this subject in the Bankruptcy Law Network blog.
Therefore, if you have filed a previous case, it is imperative that you contact Clark & Washington as soon as possible. Our firm does not accept every case for multiple filers and if we are able to take your case, we need as much time as possible to protect you from foreclosure.
Despite the changes in the bankruptcy laws, the automatic stay provision remains the most powerful part of Chapter 13 bankruptcy. Except in limited situations, the stay gives you the necessary breathing room to start your financial rehabilitation.