Special Powers Have Broad Effects In Bankruptcy

Video Transcribed:  Oklahoma City Bankruptcy Attorney Edward Kelley we are in number three in our series, Special Powers of Bankruptcy. So, in both chapter seven and chapter 13, there are some pretty extraordinary measures you can take to help yourself that you may not know about. Mainly, I’m going to talk about the automatic stay.

This applies in any bankruptcy. Chapter seven and 13, probably the one you’re concerned with. But what that means is federal law prohibits upon the filing of bankruptcy any collection activity by any creditor. Where this comes up all the time in a chapter seven is garnishment. Many times people are coming to me because their paychecks are getting usually 25% of their net taken out.

The chapter seven upon filing generates a document called Notice of Bankruptcy Filing. Get that to your payroll person immediately, and that’s the end of it. They cannot garnish you anymore. If they do garnish you past that, you are entitled to have that back. Sometimes it takes a while, but generally their creditors will give that up. Particularly if they’re savvy about bankruptcy, which most of them are.

That’s typically what I do in seven. Now, if you’re losing your house in the middle of a foreclosure, or you’re being sued, personal injury, other reasons people file a chapter seven … now, unless it’s for criminal activity, or a personal injury suit for drunk driving, injuries related to that, that filing still is going to stop any state court case including a foreclosure, which is usually what we’re talking about.

If you’ve got an angel who’s going to help bail you out, a chapter seven … just filing it will stop that foreclosure long enough that you may be able to make some kind of reaffirmation deal with your mortgage creditor. Also, you’re going to get rid of all of your other debts, and have much more ability to pay.

Of course, in a 13 you can use that stay to stop the foreclosure. Bear in mind, this is up to not just the sheriff’s sale, but beyond that. Anytime before the order, by the state court judge confirming the sale, which is the very last part of a foreclosure. So, the automatic stay will go into effect and stop any action up until that point. After that point as far as a foreclosure, you’re going to be out of

luck. The other reason many people will use an automatic stay is because they have an expectation that perhaps their income will go up in the near future, and they’re too close to the foreclosure,  won’t work with them, so they may file a case to buy some time.

Now, technically you’re not supposed to file unless you intend fully to go through with your chapter 13 bankruptcy. But if you do manage to work things out with your creditor, then generally no harm done. Although I cannot ever advocate or encourage anyone to file a bankruptcy unless you intend to go through with it. It sure is a lot of work.

So, the automatic stay, there are some situations where you don’t get it. If you filed a case in the last year and you file another one, then you get 30 days of an automatic stay, and then you have to show and petition to the court why you should have that automatic stay. This is to prevent abuse. If you’ve had more than two, you don’t get any stay, and you’re going to have to petition to get anything. So you definitely have to be careful about using a bankruptcy just to get the stay.

But for those of you being garnished, the filing … nothing short of the filing, but the filing will absolutely prevent any further garnishment. And if you’re in a foreclosure or any other lawsuit in state court, the filing of the bankruptcy will stay the proceedings until the bankruptcy is concluded, or the creditor makes a motion to the court to be treated specially and allowed to continue. As always, you can reach me at 1888 Debtline, or Edward at 888debtline.com or on Facebook at our group called Oklahomans for Debt Relief.