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Archive for the ‘Automatic Stay’ Category

Giving a Creditor “Adequate Protection”

February 28th, 2018 at 8:00 am

To be able to keep your property that’s collateral or security on a secured debt, you must give that secured creditor “adequate protection.”   

 

In the bankruptcy system, debtors and creditors each get certain protections.

“Automatic Stay” Protection for You

A major protection that you as a debtor filing bankruptcy get is the “automatic stay.” That’s the part of bankruptcy law which stops creditors’ collection actions against you. That includes stopping a secured creditor from repossessing or foreclosing its collateral or its security. (See Section 362(a) of the U.S. Bankruptcy Code.)

The automatic stay protection goes into effect immediately upon your filing of bankruptcy. But it doesn’t necessarily keep the collateral protected for the long term. The creditor can challenge that protection. 

“Adequate Protection” Protection for Secured Creditors

“Adequate protection” refers to what you must provide to your creditor to be able to keep your collateral long-term. The term refers to conditions you must meet to keep the automatic stay in effect. (See Section 361 of the U.S. Bankruptcy Code.)

Why the Creditor Gets “Adequate Protection”

Bankruptcy law tries to respect and balance debtors’ and creditors’ property rights.

With secured debts, your original contract gave you a right to keep the collateral, but only while meeting certain conditions. You could keep possession as long as you made payments when due, maintained insurance, and maybe met some other conditions.

That contract also gave your creditor the right to take away the collateral if you didn’t satisfy the conditions. So you’d lose the collateral if you didn’t make payments on time or keep insurance in effect.

Your bankruptcy filing stops your creditor from taking the collateral, but then you still have to satisfy the creditor’s property rights. You do that by providing the creditor “adequate protection.”

What is “Adequate Protection”?

The Bankruptcy Code says that “adequate protection” is

provided by… mak[ing]…  periodic cash payments to [the creditor] to the extent that the [automatic] stay… results in a decrease in the value of such [creditor’s] interest in such property.” 

See Section 361(a) of the Bankruptcy Code.

In practical terms this means is that to maintain the automatic stay and keep collateral you need to:

  • pay the creditor periodic (usually monthly) payments
  • in an amount large enough to at least offset any reduction of the creditor’s interest in the property while you keep the property

Payments to Offset the Decrease in the Value of Creditor’s Interest in the Property

This essentially means that you need to pay enough each month to make up for depreciation and any other loss in value of the collateral while you continue in possession of it.

Take an example of a vehicle loan. The vehicle loses value simply by the passing of time and from your use of the vehicle. Assume that over the course of one year your $15,000 used vehicle would depreciate by $2,400—to being worth $12,600. That’s $200 of reduction in value each month. To provide adequate protection you would have to pay the creditor at least $200 towards the loan each month.

Beyond depreciation, there’s a risk that your vehicle could be damaged or destroyed in an accident. It could also be stolen. The creditor is also entitled to protection from these possible big decreases in the value of its collateral. So besides the $200 per month, adequate protection requires you to maintain insurance on the vehicle.

Conclusion

Again, if you provide adequate protection in these ways, you can protect the collateral securing your secured debts in the long run.

 

A Creditor’s Precautionary Motion about the Automatic Stay

February 26th, 2018 at 8:00 am

A creditor might file a motion to avoid violating the stay, or to get permission to take some action other than collect a debt.   

 

In the last three blog posts we’ve covered five reasons why creditors ask for “relief from the automatic stay.” The first one is by far is the most common.  Creditors ask for “relief from stay” to take back collateral, or to establish payment and other terms that you must meet to avoid losing the collateral.

The other four reasons were to get permission to finish a lawsuit or other proceeding to determine:

  1. whether you owe any debt to the creditor
  1. the amount of that debt, assuming you owe something
  2. whether you owe a debt which can be paid by insurance (instead of you personally)
  3. whether the debt you owe can be discharged (written off) in bankruptcy     

Today we cover two more reasons that a creditor may ask the bankruptcy court for “relief from stay.” These tend to be precautionary—arguably the creditor or other party could act without bankruptcy court permission. But because of the risks of potentially violating the automatic stay the party first asks for permission.

So, a party could file a motion for relief from stay

  1. to get a court determination whether the creditor’s intended actions would violate the automatic stay
  2. to get permission to take some other action against you not involving collecting a monetary obligation

Penalties for Violation of the Automatic Stay

When a creditor or other party learns that you’ve filed a bankruptcy case, it knows that it can no longer take collection action against you to collect any debt. If it does take such action it would likely be in violation of federal law and may have to pay damages.

The U.S. Bankruptcy Code (at Section 362(k)(1)) says that

an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

In other words there can be significant financial penalties for taking action against you in violation of the automatic stay.

1. Avoiding Violation of the Automatic Stay

The problem is that sometimes it’s not crystal clear whether a certain action by a creditor would violate the automatic stay or not. Bankruptcy Code Section 362 about the automatic stay has 8 subsections about the kinds of actions that bankruptcy stays (stops). It has 28 exceptions about the kinds of creditor actions that the automatic stay does not stop. The entire code section contains about 6,500 words—lots of potential for confusion.

So how does a creditor or other adversary of yours avoid the potentially serious penalties for violating the stay? It can file a precautionary motion for relief from stay to put the issue before the bankruptcy court. The creditor/adversary doesn’t act against you until after getting the court’s determination that it is acting legally.

For example, assume that you file a bankruptcy case while you are in the midst of a divorce. Your ex-spouse wants to finish the divorce proceeding regardless of your bankruptcy filing. The Bankruptcy Code says it’s not a violation of the automatic stay to finish a divorce proceeding. However it IS a violation to the extent that “such proceeding seeks to determine the division of property that is property of the estate.”  (Section 362(b)(2)(A)(iv).)

So your ex-spouse may file a precautionary motion to find out if the property to be divided is included in “property of the [bankruptcy] estate.” He or she wants to know how to go forward with the divorce without violating the automatic stay.

Note that you can simply not respond to such a motion if you’re fine with the action your adversary proposes. Then the bankruptcy judge will likely give the adversary the clarification it needed. If you don’t object your adversary will more likely get what it is requesting.

But if you do want to object, you respond through your bankruptcy lawyer to the creditor’s motion. The judge then decides whether the creditor’s proposed action would be a violation of the automatic stay. And if it would be a violation, the court usually also decides whether the adversary is still entitled to relief from stay to proceed with his or her action.

2. Permission to Take Action Other Than to Collect a Debt

Similarly, a creditor may ask for relief from stay to take some action separate from collecting its debt. It is essentially asking to take some action other than debt collection, and wants to be sure it can.

When you enter a contract with a creditor, you often have contractual obligations beyond just paying the debt. For example, if you’re behind on rent payments on an apartment when you file bankruptcy, you owe a debt. The landlord cannot pursue you on that debt because of your bankruptcy filing. But it may want to evict you so that it can rent it to another tenant. So the landlord could file a motion for relief from stay to get permission to evict you. That motion would make clear that the landlord is NOT asking for or getting permission to collect the back rent. It’s just asking for permission to proceed with an eviction-only lawsuit. If the landlord succeeded in that motion, the court’s order granting the permission would also be limited to the eviction proceeding, and would not allow collection of the back rent.

(There are special rules about the automatic stay involving residential rentals. So be sure to discuss this with your bankruptcy lawyer if it pertains to you. Also, see Section 362(b)(22 and 23) of the Bankruptcy Code and our recent blog posts about this.)

 

A Creditor’s Challenge to the Automatic Stay to Pursue a Lawsuit

February 21st, 2018 at 8:00 am

A creditor may ask the bankruptcy court to let another court finish a lawsuit about liability and/or the amount of damages. 

 

“Relief from the Automatic Stay”

Our last blog post was about the possibility of a creditor asking for “relief from the automatic stay.” The automatic stay refers to the immediate protection you receive from debt collection as soon as you file bankruptcy. (See Section 362 of the U.S. Bankruptcy Code about the “Automatic stay.”)

So, a creditor’s motion for “relief” from that protection refers to a creditor’s request to the bankruptcy court for permission to pursue a debt in spite of your bankruptcy filing. In certain circumstances a creditor may have legal grounds to ask for an exception to the automatic stay protection. (See Section 362(d) of the Bankruptcy Code about “relief from the stay.”)

Last time we focused on the most common situations in which creditors ask for “relief from the automatic stay.” That’s when a creditor wants to pursue the collateral securing the debt. For example, it wants to repossess your vehicle or foreclose on your home because you aren’t current on monthly payments. Once you file bankruptcy creditors can’t take such actions until asking for and getting “relief from stay” from bankruptcy court.

Relief for Creditor for Reasons Other than Pursuing Collateral

However, there are other reasons for creditors to ask for relief from stay. The automatic stay covers more than the protection of collateral from your creditors. It also stops most lawsuits against you to collect a debt. In most cases your bankruptcy filing will permanently stop that lawsuit. But sometimes, under limited circumstances, a creditor which has sued you may ask for bankruptcy court permission to finish that lawsuit.

 We cover two of these limited circumstances today (and the rest in our next blog post).

Reasons to Ask for Relief from Stay to Finish a Lawsuit

A creditor might ask to finish a lawsuit in order to determine:

  1. whether you are at all liable on a debt—liability
  2. if you are liable on a debt, the amount you owe—the damages

1. Determining Liability Outside of Bankruptcy Court

Someone or some business may think you owe something to it, but you dispute that you do. You don’t think you owe anything. You think you have no liability at all.

If this dispute about liability is already being addressed in a lawsuit when you file your bankruptcy case, sometimes it makes sense to finish determining liability in that lawsuit. Your bankruptcy filing would almost always stop that lawsuit. The creditor would have to get the bankruptcy court’s permission to continue the lawsuit to determine whether you were liable.

For example, you may dispute any liability on a large credit card debt run up by your ex-spouse without your knowledge. If the cred card company sues you to collect the debt, you may be able to establish in that lawsuit that you owe nothing on that debt. The creditor may believe that you are liable and wants to determine that through the lawsuit. It may file a motion for relief from stay to do so in spite of your bankruptcy filing. (It would more likely do so if it could get money out of your bankruptcy case. That could happen in an asset Chapter 7 case or in a Chapter 13 case paying unsecured debts.)

2. Determining the Amount of a Claim

You may instead be in a lawsuit in which you admit that you owe something but dispute the amount owed. The creditor may ask for relief from stay to finish the lawsuit in order to determine the amount you owe.

For example, you were in an accident in which you admit some liability but dispute the amount of damages. You admit that you were at least partially at fault but dispute the damages you caused and their dollar amounts. In this situation the creditor may ask the bankruptcy court for relief from stay to finish the pending lawsuit to determine the amount of damages for which you are liable.

As in the situation above, the creditor would not bother asking for relief from stay if the debt is simply going to get discharged (written off) with nothing paid to it no matter how large the debt. It’s only worth pursuing the matter if the creditor can anticipate getting paid something. Again, this would be much more likely in an asset Chapter 7 case or a Chapter 13 case paying general unsecured debts.

Will the Creditor Get Relief from the Stay?

In both of these situations, the bankruptcy court may or may not grant relief from stay to finish the lawsuit.  It mostly depends on which court could more efficiently finish resolving the dispute—the original court or the bankruptcy court. If the liability or damages dispute has come close to being litigated in the original court, the bankruptcy court may just let the first court finish the lawsuit. That’s also more likely if that court has more experience dealing with those kinds of cases than a bankruptcy court. That’s often the situation. But it a lawsuit has just started, and the dispute is one that the bankruptcy court is experienced in handling, it may not give relief to the creditor but instead resolve the liability or damages dispute itself.

 

A Creditor Challenge to the Automatic Stay

February 19th, 2018 at 8:00 am

Filing bankruptcy stops creditors’ collections against you immediately. But sometimes a creditor tries to get permission to collect anyway. 

 

In our last 10 blog posts we’ve been talking about the “automatic stay.” It is one of the most important and immediate benefits of bankruptcy. The automatic stay stops most kinds of creditor attempts to collect their debts against you, your income, and your assets.

We’ve been looking at the relatively few special situations where the automatic stay protection does not apply. (Examples have included certain family court debts and proceedings, and some tax procedures.)

Today we focus in on how creditors can react to bankruptcy’s automatic stay. Creditors can sometimes challenge whether the automatic stay remains in effect or not, or whether conditions apply to its protection.

Creditor Challenges to the Automatic Stay

When you think of “relief” in bankruptcy what comes to mind is relief from your creditors. At the heart of the bankruptcy petition are the words, “I request relief.” (See page 6 just above the signature line of Official Form 101.)

But the meaning of “relief” when used in this phrase, “relief from the automatic stay,” the meaning is very different. This phrase refers a creditor’s “relief” from the protection that the automatic stay gives you. A creditor challenges your right to that protection by asking the bankruptcy court for “relief from the automatic stay” (or simply “relief from stay”).  

This might also be referred to as a creditor’s motion to lift the automatic stay injunction.

Most Creditors Don’t Ask for Relief from Stay

Creditors get relief from stay only if they qualify under certain circumstances laid out in the law. (See Section 362(d) of the U.S. Bankruptcy Code about creditor requests for “relief from the stay.”)

So don’t be concerned that all or many of your creditors will try to take this protection away from you.

Most Chapter 7 “straight bankruptcy” cases are completed without ANY creditor trying to do so. They do happen but often don’t change the outcome.

These challenges are more common in a Chapter 13 “adjustment of debts.” That’s because these kinds of case last much longer, and often involve changes to the payment terms of secured debts, resulting in more opportunities for negotiations and legal wrangling. Still this usually only involves one or two creditors. And even in Chapter 13 there are many cases with no such challenges.

Secured Creditors Requesting Relief from Stay

Most creditors which ask for relief from stay do so to get permission to take back collateral. Or often their goal is to put conditions on the automatic stay to encourage you to keep making payments on the collateral-secured debt. Here’s an example.

  • You file a Chapter 7 case when you are 2 payments behind on a vehicle loan. You want to keep this vehicle and have said so in your bankruptcy paperwork. Because of your payment history the lender files a motion for relief from the automatic stay. It wants to push you to catch up on those late payments quickly. It also wants court permission to repossess the vehicle if you don’t make those payments or fall behind later. The lender and you and your bankruptcy lawyer enter into negotiations. If necessary the issue goes to the bankruptcy judge for a decision. Usually the result is a negotiated agreement on the terms for catching up and keeping current on the payments. If you don’t comply you would likely quickly lose the automatic stay protection and lose your vehicle. If you comply you keep your vehicle.

Other Creditors Requesting Relief from Stay

Much less common, but sometimes a creditor without a secured debt has reason to ask for relief from stay. Here’s an example.

  • You file a Chapter 13 case right after being served with an eviction lawsuit by your residential landlord. The automatic stay stops the eviction. Your Chapter 13 payment plan shows how you will catch up on the unpaid rent payments and keep current thereafter. The landlord wants to proceed with the eviction. Most likely the automatic stay will continue in effect and stop the eviction as long as your payment plan does show how you’ll comply with the rental agreement, and then you in fact do what your plan says you will.  

 

Landlord’s Power over Bankruptcy to Evict Bad Tenants

February 14th, 2018 at 8:00 am

A landlord can take possession of a rental fast if you’re endangering the rental property or illegally using a controlled substance there. [

 

Bankruptcy Stopping Eviction

Two blog posts ago we got into how bankruptcy can stop a residential eviction.  Basically, you can stop an eviction if you file a bankruptcy case before the landlord gets a judgment of possession. That’s a court’s decision that the landlord has the right to take possession of your rental. That means you no longer have a property right that bankruptcy law can protect. So after this judgment, the eviction can go forward (except under some unusual circumstances discussed in that earlier blog post).

Special Reasons to Evict

However, there’s a way for a landlord to quickly evict you even if you do file bankruptcy before the judgment of possession. The landlord could accuse you of one of two kinds of bad behavior:

  • “endangerment of [the rental] property”
  • “illegal use of controlled substances on [the] property”

(See Section 362(b)(23) of the U.S. Bankruptcy Code.)

The Procedure If a Landlord Accuses You of These

The landlord can file with the bankruptcy court a certification asserting one or both of such bad behavior. That certification would state, under penalty of perjury, either that:

  • within the prior 30 days you have “endangered [the rental] property” or else have “illegally used or allowed to be used a controlled substance on the property”
  • an eviction proceeding had been filed asserting such facts

(Again, see Section 362(b)(23) of the Bankruptcy Code.)

Defeating the Landlord’s Certification

If you take no action in response to the landlord’s filed certification, 15 days later it can proceed to evict. If the landlord started the eviction before you filed bankruptcy, it can finish it. If it hadn’t started before, it could now start and complete the eviction. Your bankruptcy’s usual protection against the landlord taking possession of your rental property would no longer apply. (See Section 362(m)(3).)

However, if you dispute what the landlord states in its certification, you can file an objection to it. You and your bankruptcy lawyer must file the objection at the bankruptcy court within 15 days of the certification’s filing.  You’d have to object “to the truth or legal sufficiency of the certification.”

The bankruptcy court then holds a hearing within 10 days. It rules on whether “the situation giving rise to the [landlord’s] certification… existed or has been remedied.” If the court is convinced that the “situation… did not exist or has been remedied,” the automatic stay protection continues.

Otherwise, the court allows the landlord to immediately proceed with eviction. 

(See Section 362(m)(1 and 2).)

Conclusion

Bankruptcy stops a residential eviction if the landlord hasn’t already gotten a judgment of possession. But if the landlord has grounds that you were a bad tenant as outlined above, then you can be evicted even if your bankruptcy filing happens before the judgment. You can fight back and still win if the facts are in your favor. If so then you are protected from eviction during the 3-4 months of your Chapter 7 bankruptcy case. That would hopefully give you time to catch up on your rent or cure whatever else is wrong. Or if necessary Chapter 13 would likely give you much more time to catch up or cure.

 

Stopping Eviction from Your Rental through Bankruptcy

February 9th, 2018 at 8:00 am

Filing bankruptcy can stop a residential rental eviction. But only if you file your bankruptcy case is before a judgment of possession.  

 

Our last blog post was about stopping the collection of unpaid spousal and child support by filing bankruptcy. Chapter 7 doesn’t stop collection of this special kind of debt. Chapter 13 does, but only temporarily unless you meticulously follow a number of requirements.

Today we get into the special rules about another very special kind of debt: unpaid residential rent. Somewhat similar to spousal and child support, if you meet certain requirements your bankruptcy filing can stop certain landlord collection actions—in this case, evicting you. But an eviction does not stop if you wait too long. Here’s how it works.

Keeping Possession of Your Rental

Bankruptcy’s “automatic stay” law makes it illegal for your creditors to take many actions against you and your property. There is a list of the kinds of actions that creditors can’t take as of the moment you file bankruptcy. Included on that list is for a creditor “to obtain possession of [your] property” or “to exercise control over [your] property.” (See Section 362(a)(3) of the United States Bankruptcy Code.)

Your “property” in this statute doesn’t just include the physical, tangible things that you own. “Property” has a much broader meaning. It includes “all legal and equitable interests… in property as of the commencement of the [bankruptcy] case.” (Section 541(a)(1) of the Bankruptcy Code.) “Property” includes intangible things like your rights in something of value.

This includes any “leasehold” interests you hold. That’s your right to occupy or keep possession of your rental property. The automatic stay stops your landlord from “obtain[ing] possession of” or “exercise[ing] control over” your rental residence. Your landlord’s attempt to evict you is stopped by your bankruptcy filing.

Crucial Timing

However, there is a crucial condition to this protection. Your landlord can’t take possession of the rental only if you do actually still HAVE a right to the possession. If you no longer have a right to possess the rental at the moment you file your bankruptcy, it’s too late. The automatic stay no longer helps you.

If you’ve legally lost the right to possess the rental, then you no longer have that “property” to protect.

How and When Do You Lose Your Right to Possession?

Each state has different rules about how and when a residential lease is terminated. So you need to discuss this with an experienced local bankruptcy lawyer.

The Bankruptcy Code does provide a little more help. It says that an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(b)(22).)

Has your landlord gotten “a judgment for possession” of your rental? If not, an immediate bankruptcy filing will stop the eviction. For example, if your landlord has threatened to, or even has begun, legal action to remove you from rental premises, but has NOT yet gotten a judgment for possession of the premises, your bankruptcy filing will stop that proceeding. It will stop the landlord from removing you, at least for now. But if the landlord HAS gotten a judgment for possession, filing bankruptcy will not stop the eviction.

A Final Possibility

However, even if your landlord has just gotten a judgment for possession there is one final possible escape. There is a procedure in bankruptcy which might allow you to avoid eviction. When filing bankruptcy you and your lawyer can file a special certification. It must assert the following.

  • You are “permitted [under state law] to cure the entire monetary default that gave rise to the judgment of possession.”
  • This cure of the default is allowed under your state’s law even after the landlord received a “judgment for possession.”
  • You deposit with the bankruptcy court clerk the full amount of any rent due, including up through 30 days after filing the case, and certify that you’ve done so.

If the landlord does not object, the automatic stay goes into effect and you can stay in the rental.

If your landlord does object, the bankruptcy court holds a hearing within 10 days about this. The court decides whether the landlord’s objection is valid or not. If valid, the landlord can immediately proceed with the eviction. If the objection is not valid you can stay in the rental. (Section 362(l)(1-4).)

Conclusion

Bankruptcy stops a residential eviction if the landlord hasn’t already gotten a judgment of possession on the rental. Under very limited circumstances even after such a judgment you might be able to beat the eviction. But by then the odds are stacked quite high against you. It makes infinitely more sense to file bankruptcy before an eviction starts, and certainly before the court decision goes against you.

Be aware that eviction proceedings are usually very fast. If you expect one, or it’s already been filed, you need to see a bankruptcy lawyer immediately.

 

No Automatic Stay after Multiple Prior Bankruptcy Filings

February 5th, 2018 at 8:00 am

If you’ve had more than 1 case filed and dismissed within the last year, you’ll need to show “good faith” to get automatic stay protection. 


The Effect of ONE Prior Dismissed Bankruptcy Case

Our last blog post was about losing the automatic stay protection from debt collection, 30 days after filing bankruptcy. This loss of protection could happen as to ALL of your creditors, not just one particular one. It could happen if you had filed a bankruptcy case within 1 year before the filing of your present case, and that prior case got dismissed (thrown out and closed).

You could prevent losing this protection from debt collection by showing the new case is being filed “in good faith.” There are specific considerations laid out in the law for demonstrating “good faith.” See Section 362(c)(3) of the U.S. Bankruptcy Code.   

The Effect of TWO or More Prior Dismissed Bankruptcy Case

If within the prior year you had more than one prior bankruptcy case filed and dismissed, the consequences are worse. At the filing of your current case there would be NO automatic stay protection from the beginning. You’d have no protection for even the first 30 days, as there’d be with just ONE prior case.

The law states that, with 2 prior dismissed cases within a year, the automatic “stay shall not go into effect upon the filing of the later case.”  See Section 362(c)(4)(A)(i) of the Bankruptcy Code.

What’s the Purpose of These Rules?

About a dozen years ago Congress added the above provisions to Bankruptcy Code. At the time there was a perception that some people were abusing bankruptcy by filing multiple cases one after another. Some people would file a case to get automatic stay protection (such as to stop a home foreclosure), do nothing with the case until the court dismissed it, and then file a new bankruptcy case as soon as the creditor took some new action (such as scheduling a new foreclosure sale). Congress responded by taking away automatic stay protection in the circumstances outlined above.

How to Get the Automatic Stay into Effect?

So what do you do if somehow you’ve had two prior, dismissed bankruptcy cases within a year, and now really need to file a case again?

First, you could wait until a full year has passed after your most recent dismissed case. That would avoid this problem.

Second, you could at least wait until you had only one prior dismissed case filed within the prior year. Then the automatic stay protection would kick in right away with the new bankruptcy filing. You’d still have to demonstrate “good faith” filing of the new case to avoid losing the stay 30 days later. But at least you’d get the immediate protection.

Third, if you couldn’t wait you could file the new bankruptcy case. And at the same time you and your bankruptcy lawyer would also file a motion asking the court to “order the [automatic] stay to take effect.” Section 362(c)(4)(B).  This motion has to be filed within 30 days of the bankruptcy filing. You’d want to file it without any delay to get the automatic stay imposed as soon as possible. Again, you’d have to demonstrate that the new bankruptcy filing was done “in good faith.”                         

How to Demonstrate “Good Faith”                

What does a “good faith” filing of the new case mean?

The Bankruptcy Code lays out the requirements of demonstrating “good faith in some detail. It’s beyond the scope of the blog post to go through it all. Generally you need to show that you aren’t abusing the bankruptcy laws through your prior and present bankruptcy filings. This gets into the reason why the prior case(s) got dismissed, whether changes in personal and financial circumstances will make the present case successful when the prior one(s) wasn’t (weren’t), and whether any creditor previously asked for relief from the automatic stay and where that now stands.

Start off your first meeting with your bankruptcy lawyer by telling him or her about your prior bankruptcy filing(s). You’ll be informed about your options. Specifically, you’ll learn whether it makes more sense for you to wait to file your new case, or instead to go ahead and file the new case and the motion demonstrating “good faith.”

 

The Automatic Stay in Chapter 7 and 13

November 22nd, 2017 at 8:00 am

Filing a Chapter 7 or 13 case both stop creditor collection actions against you just the same. But after that the differences are huge. 


Last time we focused on how you can use the Chapter 7 and Chapter 13 options to your time advantage. Chapter 7 “straight bankruptcy” is very fast. If all or most of your debts can be discharged (written off), that quickness can be an important advantage. But its speed can be a downside. If you are behind on a secured debt, Chapter 13’s 3-to-5-year-long duration can be a crucial advantage. It not only buys you time but gives your protection and flexibility for dealing with such special debts.

So, both bankruptcy options provide protection, but of different kinds. Let’s see how these work to see which would be better for you.

The Immediate Protection

With either kind of bankruptcy you get immediate relief from almost all creditor collection actions.

The “automatic stay” kicks in simultaneously with the filing of your Chapter 7 or 13 bankruptcy petition. Its power is in how fast it works and how strongly it prevents creditors from taking further collection action against you. (See Section 362(a) of the U.S. Bankruptcy Code.)

How Long the Protection Lasts

The automatic stay lasts as long as your case does. So, it expires about 3-4 months after you and your bankruptcy lawyer file a Chapter 7 case. On the other hand, it expires about 3-to-5-years after filing a Chapter 13 case. (See Section 362(c) of the U.S. Bankruptcy Code.)

However, a creditor may be able to end that protection as applicable to that creditor. Creditors usually can’t prevent the automatic stay from going into immediate effect at the beginning of your case. However creditors CAN ask for “relief from the automatic stay.” That is, AFTER the automatic stay goes into effect a creditor can ask the bankruptcy court to make an exception for that creditor and let it pursue you or its collateral.   (See Section 362(d) of the U.S. Bankruptcy Code.)

How does all this all works in practice under Chapter 7 vs. Chapter 13?

Chapter 7 Is Not Designed for Ongoing Protection

As we’ve said, the automatic stay protection lasts just 3-4 months at best under Chapter 7. But in addition, certain important creditors have more reason to ask for “relief from stay” to make that even shorter.

Chapter 7 provides no mechanism for dealing with important debts that you want or need to pay. Consider debts backed by collateral you want to keep, such as a home mortgage or vehicle loan. If you’ve fallen behind there’s no tool under Chapter 7 for catching up. You have to make arrangements directly with the creditor. If you (through your lawyer) and the creditor can agree, that’s fine. But if not, the creditor can file a motion asking for permission to foreclose on or repossess the collateral. It may even do so right after you file your case, before you’ve even started any negotiation. It’s signaling that you better meet its terms or else it wants to take back the home or vehicle.

Chapter 13 IS for Ongoing Protection

Chapter 13 starts with the fact that the automatic stay lasts SO much longer. It lasts a few years instead of a few months. But just as with Chapter 7, under Chapter 13 a creditor with collateral can file a motion asking for permission to foreclose on or repossess the collateral.

The big difference is that Chapter 13 provides a mechanism for catching up on such debts. If you’re behind on a mortgage or loan with collateral, your Chapter 13 payment plan will specify how much you’ll pay each month to catch up. Assuming your proposed terms are sensible, the creditor will likely go along.

A key difference is that Chapter 13 gives you an efficient and effective way to take the initiative. Because creditors know that bankruptcy judges will approve reasonable terms, they don’t object. And they don’t waste their time and money asking for “relief from stay” knowing it would have no effect. Then once your proposed payment plan is formally approved by the judge, creditors must live with your terms.

Be aware that if a creditor thinks your catch-up terms are not reasonable it can object or file a motion. Then usually a compromise can be worked out.

Of course you have to comply with the terms of your plan as approved by the bankruptcy judge. If you don’t, the affected creditor can then file a motion asking to be allowed to pursue the collateral. Depending on the facts you may be given another chance or you may not.

Conclusion

The relatively short period of protection under Chapter 7 may be just fine if you have no surviving debts. Chapter 7 may also be fine if the surviving debt can be handled reasonably through simple negotiation. But Chapter 13 provides longer and stronger protection for you regarding past-due debts secured by collateral you want to keep.

 

Can My Landlord End My Lease Just for Filing Bankruptcy?

February 6th, 2017 at 8:00 am

Your landlord CAN’T evict you for filing bankruptcy. A lease provision which allows for eviction upon bankruptcy filing is unenforceable.  

 

Federal Bankruptcy Law and Lease Termination

Federal law does not allow your landlord to terminate your lease just because you file a bankruptcy case. U.S. Bankruptcy Code Section 365(e)(1) says:

an… unexpired lease of the debtor may not be terminated or modified…  at any time after the commencement of the [bankruptcy] case solely because of a provision in such…  lease that is conditioned on—

(B) the commencement of a case under this [bankruptcy] title

In other words, once you file bankruptcy the landlord can’t end the lease just because the lease agreement says the landlord can end the lease when you file bankruptcy. That provision in the agreement is legally unenforceable.

For Example

Let’s assume your lease agreement contains something like the following sentence:

“Tenant is in default of this Agreement if Tenant fails to pay rent on time, or if Tenant files bankruptcy. Whenever Tenant is in default, Landlord may terminate this lease.”

You file a bankruptcy case, and your landlord tries to evict you based on the lease agreement’s language above. But you can’t be evicted on that basis because that provision of the lease agreement is legally unenforceable.

What If My Lease Agreement Does Not Refer to Bankruptcy?

When you file a bankruptcy case through the help of your bankruptcy lawyer, the automatic stay immediately kicks in. The automatic stay stops, or “stays,” the collection efforts of your creditors, including your landlord.

The automatic stay prohibits your landlord from starting or continuing of any legal or direct action against you. This includes “any act to collect, assess, or recover a claim against the debtor… .” Section 362(a)(6) of the Bankruptcy Code. This prohibited act or action includes an eviction proceeding.

The automatic stay also does not allow your landlord to “obtain possession of… or to exercise control over” your property. Section 362(a)(3).

Your “property” includes both tangible objects and less tangible interests. It includes “all legal and equitable interests… in property as of the commencement of the [bankruptcy] case.” Section 541(a)(1).

That includes your right to occupy your rental property. The automatic stay stops your landlord from taking away your right to your rental.

What If I’m Behind on My Lease Payments?

Your landlord can’t end your lease just for filing bankruptcy, but what if you are in default in other ways? That depends on a number of factors. In many situations you CAN still stay in your rental even if you’re behind. And filing bankruptcy can help you do so. In our next blog posts we’ll look into various ways that filing a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts” can help.

 

Everything to Know about the Automatic Stay

November 4th, 2016 at 7:00 am

During the last 13 blog posts we’ve covered the automatic stay—crucial protection that filing bankruptcy gives you. Here’s a helpful summary.

  

1. The Basic Protection

The automatic stay is the very strong legal protection from your creditors you receive when you file a bankruptcy case. The automatic stay stops virtually all attempts by creditors to collect their debts against you, your money, and your property. It goes into effect at the moment you or your lawyer files your bankruptcy case. (See Section 362(a) of the U.S. Bankruptcy Code.)

2. Relief from the Automatic Stay

Sometimes this protection is only temporary. Creditors have some say about whether the automatic stays in effect, its protection ends, or is modified. (See Section 362(d) of the Bankruptcy Code.) Most creditors which file motions for relief from stay are doing so to get permission to repossess collateral. Or they are trying to put conditions on the automatic stay to induce you to keep making your stream of payments on the collateral-secured debt.

3. Creditor Relief Not to Pursue Collateral

Creditors sometimes have reasons to ask for “relief from stay” that does not involve collateral on a debt.  It can be to ask for permission to finish resolving an ongoing dispute outside of bankruptcy court. Some reasons a creditor might ask for relief from stay are to:

  1. determine whether you are liable on the debt or claim at all
  2. calculate, if you are liable, the amount of your liability
  3. pursue insurance proceeds only
  4. determine the dischargeability of a debt outside the bankruptcy case
  5. get a bankruptcy court ruling about whether the creditor would be violating the automatic stay
  6. pursue a co-debtor (Section 1301)
  7. get permission to take other action not directly involving paying the debt

4. “Adequate Protection”

To keep possession of your property that is collateral on a secured debt, you need to give the creditor “adequate protection.” This generally involves 1) paying the creditor periodic (usually monthly) payments, 2) in an amount large enough to at least offset any reduction of the creditor’s interest in the property while you keep the property. (See Section 361.)

5. Exceptions of the Automatic Stay for Certain Creditors and Their Acts

a. Criminal Matters:

 Bankruptcy does not prevent a district attorney or other governmental authority from starting or continuing a criminal case against you. That includes any step of a criminal case: arrest, indictment, plea bargaining, trial, sentencing, appeal, and incarceration. The automatic stay simply does not apply to criminal matters. (See Section 362(b)(1).)

b. Family Court Proceedings:

Your ex-spouse, about-to-be ex-spouse, or somebody on his or her behalf, can start or continue the following limited proceedings:

  •  
    • to establish the paternity of a child
    • to establish or modify the amount of child or spousal support
    • to resolve issues of child custody or visitation
    • to address domestic violence

(See Section 362(b)(2)(A) of the Bankruptcy Code.)

c. Collection of Child and Spousal Support:

The automatic stay does not stop the collection of ongoing child or spousal support. Your ex-spouse or a support enforcement agency can continue to collect by any legal means. This is true no matter what kind of bankruptcy you file.

Besides ongoing support, Chapter 7 “straight bankruptcy” also does not stop the collection of unpaid and previously accrued support arrearage. This means that under Chapter 7 your ex-spouse/support enforcement agency can start or can continue collecting all forms of support through means that can often include:

  •  
    • wage withholdings
    • garnishment of bank accounts
    • seizure of a tax refunds
    • suspension of your driver’s licenses (both regular and occupational)
    • suspension of virtually all other licenses issued to you by the government, including occupational and professional licenses, and often including even hunting or other recreational licenses.

(See Section 362(b)(2)(B-D).)

d. The IRS and State Tax Authorities:

The IRS/state can take certain administrative actions related to DETERMINING the amount of tax you owe, but NOT to COLLECTING the tax. So, in spite of you filing bankruptcy, they can do the following:

  •  
    • Start or finish a tax audit “to determine tax liability.” (Section 362(b)(9)(A) of the Bankruptcy Code.)
    • Send you a notice about the amount of tax that you owe—a “notice of tax deficiency.” (Section 362(b)(9)(B).)
    • Demand that you file your tax returns, a legal requirement understandably not affected by your bankruptcy filing, and which indeed is often necessary to be able to administer your bankruptcy case. (Section 362(b)(9)(C).)
    • Make an “assessment” of your taxes and issue a “notice and demand for payment.” (Section 362(b)(9)(D).)
    • Under certain limited circumstances a tax lien can attach to your personal property and real estate. (Section 362(b)(9)(D).)

e. Residential Leases:

The automatic stay stops your landlord from taking away your right to your rental, for a period of time anyway. If your landlord has taken legal action to remove you from rental premises and has NOT yet gotten a judgment for possession of the premises, your bankruptcy filing will stop that proceeding and will stop the landlord from removing you. But an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(b)(22).)

f. “Endangerment of Property” and “Illegal Use of Controlled Substances”:

A residential landlord doesn’t necessarily need a judgment of possession. If it believes that you are either endangering the rental property or there’s an illegal used of a controlled substance on the property, it can certify this to the bankruptcy court. If you don’t object the landlord gets relief from stay to evict you. If you object and prevail, the automatic stay protection continues. (Section 362(b)(23).)

6. Losing the Automatic Stay through a Prior Bankruptcy Filing

You could you lose the automatic stay as to all of your creditors (not just one creditor filing a motion for relief from stay). That could happen if:

  • during the one-year period before filing a new case you were in a prior bankruptcy case; and
  • that prior case was “dismissed” (thrown out and/or closed before it was completed).

Then the automatic stay could altogether terminate 30 days after filing your new case.

However, the automatic stay would remain in force if within those 30 days you established with the bankruptcy court that your present bankruptcy case was filed in good faith. (Section 362(c)(3) of the Bankruptcy Code)

7. Lack of the Automatic Stay through Multiple Bankruptcy Filings

You could file bankruptcy and not receive the protection of the automatic stay from the beginning. That could happen if:

  • during the one-year period before filing a new case you were in two or more prior bankruptcy cases, and
  • those prior cases were “dismissed” (thrown out and/or closed before being completed).

Then the automatic stay “shall not go into effect upon the filing of the later case.”

However, the automatic stay would come into force once you established with the bankruptcy court that your present bankruptcy case was filed in good faith..” (Section 362(c)(4))

 

 

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