13 Sep Bankruptcy stops debt collection automatically
Bankruptcyâ€™s Automatic Stay is an extremely powerful tool that protects you from debt collection during a case, though you can lose that protection under certain circumstances. But first, what is the automatic stay and how do you get it?
You get a stay automatically from the Court at the time a case is filed [bankruptcy laws are full of exceptions, so always contact a lawyer to learn how bankruptcy would affect you]. That stay stops most debt collection activity, such as lawsuits, foreclosure, garnishment, collection letters, and collection phone calls and generally prevents many types of bad debt collection stuff from happening to you.
If your creditor does not like the way it is treated in bankruptcy it can ask the Judge for relief from the stay. Words have special meaning in the bankruptcy context. Let me explain some of them in simpler terms. Relief from the stay means the stay no longer stops the creditor from trying to collect money or property from you.
Your creditor has to prove in a court trial that it is entitled to relief from the stay, and you are given notice of that trial date and a chance to defend yourself. Only certain types of creditors can win these trials.
The automatic stay law, 11 U.S.C. 362, allows a creditor, with an interest in some property, to protect that interest in that property if that creditor is not adequately protected by the bankruptcy. Adequate protection is another one of those bankruptcy phrases that has a special meaning. It means the bankruptcy must provide a way for that creditor to receive at least the present value of its interest in your stuff or some payment to prevent its interest from losing value during the bankruptcy case. Some examples of creditors with interests to be protected include lenders who have a lien on your car or a mortgage on your house. If your bankruptcy does not offer them something, then they can ask the Judge for permission to proceed to collect their debt against you or to take your stuff.
Not every creditor gets to do this. A recent Southern Illinois bankruptcy case ruled against a bank that sued a debtor on a dishonored check. The bank claimed the debt should not be discharged by the bankruptcy because the debt occurred by fraud. The bank argued it was not adequately protected by the bankruptcy because it would not get payment during the case.
The Judge ruled the bank was a general unsecured creditor, one of many in the bankruptcy case that was owed money but did not have a lien or interest in any particular property. As the bank did not have an interest in property to protect, therefore the bank was unable to prove that interest was not being adequately protected by the bankruptcy. The stay remained in effect as to this creditor while the debtor was in this bankruptcy case.
The case is In re Koger, 12-31409, from the United States Bankruptcy Court for the Southern District of Illinois.
Andy Miofsky, Esq.
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