Buying Time to Re-launch

We see it every month: homeowners struggle to pay their mortgages and feed their families but fall behind and eventually are served with a foreclosure notice. If they’ve been making partial payments instead of saving money to re-launch their lives in a rental property, bankruptcy protection might be the only thing between them and a homeless shelter.

How bankruptcy helps you buy time

Upon filing for bankruptcy protection, the debtor is granted an immediate and automatic stay of almost all collection efforts by creditors. This means that while the bankruptcy case is open, most creditors, including a mortgage company, cannot take action to collect a debt unless the bankruptcy court grants a creditor’s motion to stop the automatic stay (these are called “motions for relief from stay”). We advise clients to take this time to re-group financially and emotionally.

The automatic stay

The automatic stay applies to most creditors and is a statutory injunction that stops harassing telephone calls, lawsuits, foreclosures, garnishments, repossessions and all collection activities, the moment your bankruptcy petition is filed with the bankruptcy court. It places you and your property under the protection of the bankruptcy court and allows time and space for an orderly administration of the bankruptcy estate by a bankruptcy trustee.

The injunction takes effect against your creditors without you or your attorney appearing in court, filing a motion or waiting for an order from the bankruptcy court.

For consumers who have waited until the last minute to deal with a pending foreclosure or repossession, the rapid relief afforded by filing bankruptcy is the only sure way to stop a foreclosure or repossession.

What happens if creditors continue calling?

Unfortunately, many of your creditors are very large organizations; therefore, it may take some time for the notice of the bankruptcy to reach the appropriate person or department. Thus, even after you file, you may well receive telephone calls or letters in an attempt to collect a debt that is included in your bankruptcy. Tell the caller that you filed for Chapter 7 (or 13) bankruptcy, the date that you filed, and give them the name and number of your bankruptcy attorney, if you have one.

The bankruptcy code does not permit the creditor to obtain additional information from you, so hang up. If the creditor contacts you again, it may be violating the bankruptcy code, because any creditor who contacts you about a debt included in a bankruptcy, and does so knowing of the bankruptcy, has violated the automatic stay.

When in doubt about contact by a creditor, consult a qualified legal advisor.