Summary
Bankruptcy debtors receive an automatic stay from creditors continuing collection action on their debts. However, creditors can file objections and motions that, if granted, will set aside the automatic stay and allow the creditors to continue the collections actions against the debtor. It is important for debtors to understand the circumstances under which a creditor can have the outstanding debt be excepted from the automatic stay.
Details
In a Chapter 7 bankruptcy, you are asking the Bankruptcy Court to forgive the majority of your debt. When you file for bankruptcy, an automatic stay is put in place to stop your creditors from continuing to attempt to collect on the debts or stop foreclosure proceedings or repossession of your automobile. However, some creditors would be able to file a Motion for Relief from the automatic stay. If granted, this would allow the creditor to continue collection attempts on you.
When you file for Chapter 7 bankruptcy protection, the Bankruptcy Court sends out a Notice of Meeting of Creditors, also known as a “341 Notice,” to you, your attorney, and all your creditors. This notice tells all your creditors when the Meeting of Creditors will take place and what their deadline is for filing initial claims, objections and exceptions. This notice is usually sent within ten days of the filing of Chapter 7 bankruptcy.
Your creditors have sixty days from the date of the Meeting of Creditors to file any claims for non-exempt assets or objections to the discharge of their debt. They must provide grounds for their argument as to why their debt should not be discharge. If you owe alimony, child support, or student loans, those are usually are exempt from the automatic stay.
Further grounds for objections from the automatic stay are if the creditor suspects you of committing fraud as it relates to the bankruptcy laws. Typically, what constitutes fraud in terms of bankruptcy is when someone uses credit to purchase something or take a cash advance when they are planning on filing bankruptcy, know that their finances are unable to repay the debt, or they had no intention of repaying the debt. This can be considered fraud to the Bankruptcy Court and may give the creditor the ability to pursue collections on the debt.
A creditor can file a Motion for Relief from the Automatic Stay if they can provide evidence as to why they feel their debt should not be included in the stay. If a creditor is granted the relief, they will then be allowed to proceed with foreclosure, repossession or further collection on the debt. Typical creditors who are granted relief from the automatic stay are mortgage lenders and car finance companies who want to continue to receive payments during the bankruptcy proceeding. As long as you are making the agreed-upon payments, the creditor cannot take the property from you.
Filing for Chapter 7 bankruptcy protection can help you make a fresh start in life. Working with the Bankruptcy Court to relieve you of the stress from debt is not the easiest decision to make, but can be the best decision for you to help get your finances back to where you want them to be.