One of the greatest benefits of filing for Chapter 7 or Chapter 13 bankruptcy is the automatic stay, which immediately goes into effect once you have filed for bankruptcy. The automatic stay is a court order that brings an immediate halt to any collection actions being directed against your personal property by a collection agency, government entity, or creditor.
You should know, though, that the automatic stay in bankruptcy has a few limitations. Depending on your debt situation, this court order may not be able to protect you from certain actions taken against you by the IRS and a few other parties.
Read on to learn about how the automatic stay can help you and what it won’t protect you from after you file your bankruptcy case.
What the Automatic Stay Can Prevent
When you’re in a position that makes filing for bankruptcy necessary, you may have a few financial emergencies that the automatic stay can help you with. Here’s how the court order affects some of the most common financial crises.
Eviction
If you are facing eviction, the automatic stay may be able to keep you in your rental for a few extra days or weeks. However, your landlord can petition the court to lift the stay so he or she can continue with the eviction process.
Unfortunately, if the following situations apply to you, the automatic stay won’t do anything to stop the eviction proceedings:
● Your landlord has a judgment of possession against you at the time you file for bankruptcy.
● Your landlord has accused you of using controlled substances on the property or endangering the premises.
It’s important to note that if your landlord asks the court to lift the stay, and the court agrees to do so, you can be evicted.
Disconnected Utilities
If you are in danger of having your electricity, gas, water, or telephone service disconnected for non-payment, the automatic stay will prevent your utility providers from shutting off your service for a minimum of 20 days.
The purpose of the automatic stay is to give the debtor a brief respite from their creditors, during which they can be making plans to pay their immediate obligations, such as utilities, going forward.
Foreclosure
If you’re currently in pre-foreclosure, the automatic stay will stop the foreclosure process in its tracks and give you some much-needed time to catch up on your missed payments. But there are a couple of situations in which the stay can be quite temporary or not go into effect at all.
If you’ve had one bankruptcy case dismissed within the last year, the automatic stay will only stop the foreclosure process for 30 days. If you’ve had two or more bankruptcy cases dismissed in the last year, the stay will not go into effect. You can make a motion to extend the automatic stay and the judge will decide if the stay should be extended or not.
Wage Garnishments
The automatic stay stops most wage garnishments immediately, so if you have multiple parties taking a chunk of your paycheck, filing for bankruptcy can stop that. That said, if you owe back child support or alimony and your wages are being garnished for that reason, you’ll still need to pay those debts when your bankruptcy case is discharged.
Because alimony and child support are considered non-dischargeable debt, even bankruptcy won’t take those debts off your plate.
Overpayment of Benefits
If you receive public benefits and were paid more than you were entitled to, the payer is typically entitled to collect the overpayment from any future checks you receive. If you no longer receive those benefits, the agency can collect the overpayment from you directly.
With the automatic stay in effect, however, no money can be taken from your future benefit checks. But if you become ineligible for benefits while the stay is in place, the agency can still terminate your benefits.
Collections the Automatic Stay Cannot Prevent
As mentioned, the automatic stay has some limitations, so if any of the following situations apply to you, the stay can’t help.
Support Lawsuits
If a lawsuit has been filed against you to collect, modify, or establish child support or alimony, the automatic stay cannot stop that suit from moving forward.
Criminal Proceedings
If you were convicted of a crime and sentenced to pay a fine or perform community service, the automatic stay will not prevent you from having to do those things. By law, you’re still required to fulfill those obligations.
Specific Tax Proceedings
Even with the automatic stay in place, the IRS can still issue a tax deficiency notice, demand a tax return, audit your return, issue a tax assessment, and demand payment of a tax assessment. However, the stay will prevent the IRS from seizing your property or issuing a tax lien against your property. With the stay in place, the IRS cannot hound you for back taxes either.
For more information about how bankruptcy affects back taxes, see What Happens to Tax Debt in Bankruptcy?
Pension Loans
If you took out a loan against your corporate, military, or government pension and still owe on that loan, the automatic stay will not stop collection actions. Money can still be taken from your paycheck to repay your debt.
Schedule a Free Consultation With a Minneapolis Bankruptcy Attorney
If you’re living with overwhelming debt and believe filing for bankruptcy may be your best option, please don’t hesitate to get in touch with the Law Office of Ron Lunquist. For more than 20 years, we’ve proudly served residents throughout the Twin Cities and have facilitated thousands of successful bankruptcy cases.
To get started or learn more about how we can help, call our office today at 651-454-0007 or request a consultation online, and we’ll reach out with additional information.