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Creditor Collections NOT Stopped by a Bankruptcy Filing

You can’t count that filing a bankruptcy will instantaneously stop every act against you by every one of your creditors. Or can you?

Isn’t one of the most important benefits of filing bankruptcy the fact that it puts a screeching halt to all collection efforts of your creditors against you and your property? Yes, and in fact in many cases it does exactly that. This benefit of filing bankruptcy is called the “automatic stay,” because at the moment of the filing of your case a legal injunction automatically goes into effect “staying,” or stopping, most actions by creditors against you. But exactly because the automatic stay is something we count on so much, we better know its exceptions.

Today I’m just going to list some of the most important exceptions. Then in the next couple blogs I will explain in practical terms these and other important aspects of the automatic stay.

So creditors CAN do the following in spite of your bankruptcy filing:

1) A district attorney or other governmental authority can begin or continue a criminal case against you, such as an indictment, a criminal trial, or a sentencing hearing. This includes not just felonies and misdemeanors, but also lesser matters like traffic infractions that you might not think of as “criminal.”

2) Your ex-spouse, or about-to-be ex-spouse, or somebody on his or her behalf, can start or continue a variety of divorce and family court proceedings. These include legal procedures to establish paternity of a child, determine or change the amount of child or spousal support to be paid, settle child custody or visitation issues, address domestic violence disputes, and even dissolve the marriage. (Although a marriage dissolution usually cannot include a determination about how assets or debts would be divided between the spouses.)

3) Specifically about child or spousal support, the person owed ongoing support can continue collecting it. If there is back support owed, then in spite of a Chapter 7 filing, the person who is owed the support can in most cases start or continue collecting it. This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license, or even a hunting or other recreational license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.

4) Taxing authorities can start or finish a tax audit, can send you a notice that you owe taxes, can demand you to file your tax returns, can assess your taxes and demand you to pay them, and in some situations can even file tax liens against you and your property.

Notice that each of these exceptions involves a special kind of creditor. As I said, the automatic stay stops actions against you by most creditors. But if you are involved in a court proceeding or collection efforts by the criminal or taxing authorities, or by an ex-spouse, be especially aware of these exceptions.

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Does Filing Bankruptcy Affect a Non-Citizens Immigration Status?

Usually not.  But in some limited situations the indirect consequences can be huge.

Considering what’s at stake, if you are either a legal or illegal immigrant considering filing bankruptcy, this is definitely an area where you need the advice of both a bankruptcy and an immigration attorney. It’s my job to give my clients advice, but sometimes the most important thing to tell them that they need the additional help of another professional. This is one of those situations.

When you go to meet with each attorney, here are some general principles that can guide your consultation with them:

1) Just as the bankruptcy documents don’t ask you anything about your citizenship status, your naturalization application will not directly ask anything about filing bankruptcy. Bankruptcy is a legally accepted method for dealing with your debt. In fact it may even help you avoid dealing with your financial circumstances in more desperate ways, ways which could jeaopardize your immigration prospects.

2) To become a lawful permanent resident or citizen, an immigrant must establish “good moral character.” It is conceivable, although not likely, that your bankruptcy filing could be seen as an issue of moral character. Immigration is considered on a case-by-case basis, so you need to talk with an immigration attorney thoroughly familiar with current practices.

3) If you have been convicted of one of a certain set of crimes, or if you reveal during your bankruptcy proceeding that you committed one of these crimes, these could adversely affect your immigration status. Certain crimes could even result in deportation. Examples include crimes of “moral turpitude” like using credit cards in other people’s names, writing fraudulent checks in more than one state, tax evasion, fraudulent transfers of assets, or providing false information to the federal government (for example, in bankruptcy petitions!).

4) Your citizenship application will ask if “you have ever failed to file a required federal, state or local tax return,” and whether you owe any overdue taxes. Bankruptcy can legally write off some taxes, but there may well be adverse immigration consequences for doing so. This is especially problematic if you have been working and getting paid “under the table,” and not having taxes withheld.

5) If you’re not legally in the U.S., you are definitely exposing yourself to the legal system by filing bankruptcy. False social security numbers—either on the bankruptcy documents themselves or even on prior credit applications—would likely lead to huge problems. In some parts of the country, U.S. Attorneys appear at the Meeting of Creditors to ask about these and other immigration related matters. You are under oath and may find yourself in a very sensitive and dangerous situation.

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