When you file for protection under the U.S. Bankruptcy Code, the bankruptcy court will automatically issue a stay that stops all collection activities by creditors. The automatic stay is a court order that prevents creditors from calling you, sending you letters, and otherwise pushing you to pay what you owe them. The stay is meant to be a form of relief that gives you the chance to get organized as you approach your bankruptcy proceedings. If you are subject to a child support order, however, it is important to understand that the automatic stay will not help you with that particular obligation.

How the Automatic Stay Works

Whether you are filing Chapter 7 or Chapter 13 bankruptcy, the bankruptcy code recognizes that you will need time and space to sort out your thoughts and to prepare for the proceedings without creditors bothering you at all hours of the day. The automatic stay is meant to give you that time and space. The stay also serves as the proverbial “line in the sand” as well, meaning that once the stay is issued, collection efforts cannot resume until the bankruptcy proceedings are complete or the creditor obtains the express permission of the bankruptcy court to contact you again. In the meantime, you will not be at risk of foreclosure, eviction, wage garnishments, or even having your utilities shut off.

Child Support Is an Exception

If you currently pay child support, the automatic stay will not help your required payments nor will it prevent collection activities if you are behind on your support obligation. The automatic stay is intended to give you relief, but not at the expense of your child’s best interests. You must continue making your child support payments during the bankruptcy proceedings, or you could be subject to collection efforts by state agencies or the court.

The CDC’s recent order stopping all U.S. residential evictions gives you a new tool to use with some wise bankruptcy planning.

The Centers for Disease Control and Prevention (CDC) just asserted its COVID-fighting power to stop most residential evictions through 2020.

On Friday, September 4, 2020, a federal order went into effect temporarily stopping certain residential evictions throughout the country. Issued by the Centers for Disease Control and Prevention (“CDC”), it’s titled “Temporary Halt in Residential Evictions To Prevent the Further Spread of COVID-19.” The legal basis and purpose of the Order is “to temporarily halt residential evictions to prevent the further spread of COVID-19.”

Try to file bankruptcy before a tax lien gets recorded. But if you can’t, here are the effects of a tax lien under Chapter 7 and 13.

This blog post continues a series about the smart timing of your bankruptcy filing. (It was interrupted by two blog posts updating federal unemployment benefits.) The last in this series was about how good bankruptcy timing prevents you paying certain income tax interest and penalties. We ended with this: “The effect of a tax lien depends on whether the tax at issue qualifies for discharge, and whether you file a Chapter 7 or 13 case.” That’s today’s important topic.

Bankruptcy is often seen as a last-ditch effort to overcome the financial burden that you may be experiencing. While this is typically the case, the level of debt that one may be in can vary greatly depending on their circumstances. Some may have no income and are struggling to pay basic bills, while others may have a steady income but have found themselves buried by exponential medical or credit card expenses. There are two common ways that Texans can file for bankruptcy: Chapter 7 and Chapter 13 bankruptcy. By looking at your unique circumstances, you can determine what type of bankruptcy filing is appropriate.

Chapter 7

When imagining what filing for bankruptcy looks like, people often imagine something along the lines of Chapter 7 bankruptcy. Also known as “liquidation bankruptcy”, this form of bankruptcy has the trustee sell the debtor's property and use the money collected to pay off their debts, as close to the total amount as possible - all remaining debts will be forgotten. This form of bankruptcy may seem preferable to some, since the process only takes about six months and some debts may be forgotten, but it is not available to all debtors. If the debtor’s income falls below the state’s median household income, which in Texas is $59,570, he or she is eligible to file for Chapter 7 bankruptcy. The debtor will not lose all of his or her assets during the bankruptcy process, since some personal property can be claimed exempt from the process.