Very rarely, the filing of a bankruptcy will NOT stop the creditors from chasing the debtor. Here’s how to avoid this happening to you.
The Essential “Automatic Stay”
In just about every bankruptcy case, stopping creditors from pursuing you and your assets is a crucial part of what you get for filing the case—regardless whether it’s a Chapter 7 or Chapter 13 case. This benefit of filing bankruptcy—called the “automatic stay”—generally applies to every case, to every creditor, and to just about to everything that a creditor can do related to collecting a debt.
Exceptions to the “Automatic Stay”
In our last blog we explained some narrow exceptions, which only apply to a narrow set of creditors and to a narrow set of their actions.
Today’s blog is about a very different kind of exception to the “automatic stay,” one that, although very rare, is potentially very dangerous because it could result in this crucial benefit not applying to your case at all. As a result your creditors could continue chasing you and your assets as if you had not even filed a bankruptcy case.
You absolutely want to avoid this from happening. And it’s usually not hard to avoid it.
This Dangerous Exception Only Applies if You Had a Previous, Recent Bankruptcy
If you are now considering filing bankruptcy, AND YOU HAVE NOT FILED a prior bankruptcy case within the last year which was dismissed (thrown out by the court), then this exception will not apply to you. You need to be absolutely sure about this, so please finish reading this blog to make sure.
The Rationale for This Rare Exception
Before these rules were enacted, a very small minority of people filing bankruptcy would file a series of separate cases, one after another, with the intention each time of using the new “automatic stay” of each new case to repeatedly delay a foreclosure or some other collection action. Congress decided that this was an inappropriate use of the bankruptcy laws, and put a stop to it by taking away the benefit of the “automatic stay” as follows.
The Two Rules
The First Rule: The “automatic stay” WOULD NOT go into effect at all when filing a new case if within the past year you had filed two or more other bankruptcy cases, and those earlier cases had been dismissed. If this were to happen, the “automatic stay” COULD potentially still be applied to your case after filing but only by convincing the bankruptcy judge that you meet certain conditions.
The Second Rule: The “automatic stay” WOULD go into effect filing a new case if within the past year you had filed one other bankruptcy case, which was dismissed, BUT the “automatic stay” would expire after 30 days. Its expiration COULD be avoided, but only by convincing the bankruptcy judge that you meet certain conditions.
The conditions referred to above that you’d have to meet for imposing or preserving the “automatic stay” involve justifying why the previous case(s) was (were) dismissed and why the present case is being filed. (The details of these conditions are complicated and beyond what can be covered in this blog.)
Watch Out to Make Sure of No Prior Recent Bankruptcy
Be careful because sometimes people can file a bankruptcy case and have it dismissed without realizing or remembering what happened. For example, if someone files a bankruptcy case without an attorney, and somehow does not complete it, the case would get dismissed. Or is someone does hire an attorney and the case gets filed, because of some miscommunication the case could get dismissed. Either way, months later when this person wants to file bankruptcy he or she could not understand or recall that in fact a case did get filed and dismissed.
So…
Avoid this problem by thinking carefully about whether there is any possibility that a bankruptcy case was filed in your name in the past 365 days. And if it possibly happened, tell your attorney about it right away.