Posted by Kevin on July 22, 2013 under Bankruptcy Blog | 
Filing bankruptcy can buy you a little time or a lot of time, enough time either to transition to a new home or else to save your present home.
The same bankruptcy power that stops a lawsuit or garnishment of your wages or bank account, also stops a home foreclosure. The practical question is: what happens to your home after the foreclosure is stopped?
Chapter 7: the Option that Buys You a Little Time
A Chapter 7 “straight bankruptcy,” is by far the most common type. It gives you protection against foreclosure for three months or so, or potentially for even less time if the mortgage lender is aggressive.
With such a short period of protection, a Chapter 7 would help you in two quite different situations:
1. if you have decided to surrender your home but need just a few weeks to move; or
2. if you want to keep the home, and can afford to catch up on the late payments within about a year of extra payments.
Filing a Chapter 7 is like hitting a pause button. If you’re letting your house go, it lets you catch your breath before you have to leave. If you’re hanging on to the house, a Chapter 7 gives us time to do a deal with the mortgage lender.
Chapter 13: the Option that Can Buy You Years of Time
Filing under Chapter 13 can potentially give you five years to pay off your back payments, and does so in a more flexible and powerful package.
Instead of negotiating with the mortgage lender and hoping that it will give you terms that you can live with, Chapter 13 generally gives you a set of rules to follow for catching up with that lender. It also gives you time to catch up on any back property taxes, can often get rid of a second mortgage or a judgment lien, and usually provides a practical way of dealing with other liens on your home, such as an income tax or child support lien.
A Chapter 13 case is flexible, so that if you have changes in your circumstances during your case your plan can be adjusted to account for the changes. That makes holding on to your real estate more feasible. It also means you can change your mind and decide to surrender it, months or even years after your case was filed.
The mortgage lender can always ask the bankruptcy court for permission to begin or restart a foreclosure. These kinds of creditors tend to do so either at the beginning of your case if they don’t like the Chapter 13 payment plan that you and your attorney are proposing, or later in the case if you’ve not made the payments that you said in your plan that you would make. The court balances your rights against those of the lender in deciding whether to give you the extra time you need.
Posted by Kevin on July 16, 2013 under Bankruptcy Blog |
Getting sued by a creditor is a wake-up call to consider filing bankruptcy. If it is the right thing to do, there are advantages to filing before your deadline to respond to the lawsuit.
If you get sued by a creditor, as discussed in my last blog it’s dangerous both short-term and long-term not to consult with an attorney. Today’s blog is about the immediate effect on that lawsuit if you do file bankruptcy.
The Basic Automatic Stay
The filing of your bankruptcy stops that lawsuit instantaneously. It doesn’t take a separate court order or any action by the bankruptcy court or judge to stop it. It’s the mere act of filing the bankruptcy case of itself that stops the lawsuit against you. The word “stay” in that statute means “stop.”
The Immediate Effect of the Automatic Stay
Timing is important with a lawsuit. A judgment will be entered against you if you don’t formally respond to the lawsuit by the stated deadline, and that judgment would give the creditor more ways to get money out of you. The entry of a judgment can also create a lien against your real estate, and filing bankruptcy afterwards will create complications in trying to clear that lien off your title.
So stopping the judgment from being entered in the first place can be very important. The safe way to do that is to file bankruptcy plenty of time before your deadline to respond to the lawsuit. But if you are cutting it close, it helps that the automatic stay is effective instantaneously. If the creditor’s attorney is about to file documents to enter a judgment at court, but your bankruptcy is filed before that happens, that attorney can’t try to get a judgment quickly before the bankruptcy court acts, because the bankruptcy court doesn’t need to act. As its name says, the stay is automatic.
Telling the Suing Creditor about the Bankruptcy Filing
All your creditors will receive a formal notice of your bankruptcy filing, by mail and in some situations perhaps electronically. But that mailed notice is of course not instantaneous. It is mailed out a few days after the filing of your bankruptcy case, so that all of your creditors should know about it within about a week after you file. But that may well not be fast enough to stop the judgment documents from being filed by the creditor’s attorney and entered by that court. So in urgent situations either you or your attorney need to directly inform that attorney about the bankruptcy filing.
Creditors’ Violations of the Automatic Stay
But what if that attorney just goes ahead and submits the judgment papers, either from not finding out in time about your bankruptcy filing or in spite of knowing about it?
The judgment will not be effective, and the attorney will be required to undo the paperwork. If the entry of the judgment results in any damage to you (such as a garnishment of your bank account), the creditor would likely have to compensate you for the damage it (or its attorney) caused. These damages can include your attorney’s fees for enforcing the automatic stay. In circumstances where the bankruptcy court is persuaded that the creditor needs to be taught a lesson, the court may order the creditor to pay you punitive damages. Because of these potential penalties, most creditors are cooperative about stopping their lawsuits immediately when they are informed about a bankruptcy filing.
The Bottom Line
As soon as you are sued by a creditor, the clock is ticking for a judgment to be entered against you. So use this lawsuit as an incentive to see an attorney right away to find out the short-term and long-term ways the judgment could hurt you. Find out whether bankruptcy is or is not a sensible option, and whether it is in your best interest to file a bankruptcy case before a judgment can be entered against you in the lawsuit.
Posted by Kevin on July 10, 2013 under Bankruptcy Blog |
Bankruptcy quashes a garnishment, but only if it’s filed in time.
It’s all about federalism. OK. Take a deep breath. This is a little technical, but we can get through it.
Under our federalist system of government, first, federal law trumps state law in those areas of law—such as bankruptcy—in which the U.S. Constitution gives Congress the power to write laws. But second, federal law respects state law in areas of law where the states have the right to make laws—about the collection of debts, for instance.
So, state garnishment law and federal bankruptcy law butt up against each other when a garnishment and bankruptcy filing happen at about the same time.
Bankruptcy stops virtually all garnishments once the bankruptcy case is filed. But this power of bankruptcy—called the automatic stay—only kicks in at the moment of filing, not before that. So if a garnishment order is entered by the state court and your employer delivers money over to the garnishing creditor the minute before the bankruptcy case is filed, the garnishment is not prevented by the automatic stay. But the automatic stay stops all future garnishments, because now the federal law is trumping state court in the area of law where it reigns supreme.
So it’s a race between a creditor completing a garnishment in the state court, and you filing a bankruptcy in bankruptcy court.
Close Calls Depend on the Details of State Garnishment Procedures
More about the automatic stay.
Bankruptcy law simply says that a bankruptcy filing “operates as a stay” (a “freezing”) of “the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy] case.” A garnishment is an “enforcement… of a judgment obtained before” the bankruptcy case was filed. “Property of the estate” consists of everything that you own at the time your bankruptcy is filed, including a paycheck that’s been earned but not yet paid to you.
So the creditor is stopped from garnishing from that paycheck, UNLESS according to that state’s laws at the moment of the bankruptcy filing the garnished money no longer belongs to you, and thus, not to your new “bankruptcy estate.” Exactly when that happens depends on that state’s exact garnishment procedure and on its property law. For example, who does the money being garnished belong to—you or the creditor—if the employer has cut the check for the creditor but not yet delivered it to the creditor at the moment the bankruptcy is filed. You get the idea how complicated this can get.
The Main Idea
Regardless how these hair-splitting issues would be resolved in your state, the main lesson here is to avoid this problem by having your bankruptcy case be filed well before a creditor has the right to garnish your wages. Yes, in the real world that may be harder said than done, but you can see why it makes sense.
In the next blog, we will re-visit this issue
