Bankruptcy gives breathing room to distressed consumers, and that’s very good news for an awful lot of people. It is little wonder that one in four Americans deal with such severe financial stress that it produces PTSD-like symptoms. After only one month, most moneylenders turn into debt collectors, using tactics like constant phone calls and collections letters. These methods quickly escalate and become repossession, foreclosure, and eviction.
No matter what debt collection stage consumers are in, bankruptcy instantly stops them all, at least in most cases.
Mechanics of the Automatic Stay in Indiana
Some aspects of bankruptcy procedure vary among different jurisdictions in Illinois. But Section 362’s operation is almost always the same. Many, if not most, debtors are at their wit’s end when they reach out to bankruptcy attorneys. So, they are accustomed to dealing with issues like:
- – Foreclosure: The stay is only effective against a particular moneylender once the entity receives actual notice of the filing. In eminent foreclosure situations, the standard notice channels may not be fast enough. So, bankruptcy attorneys often deliver notice directly to the sheriff or other official who conducts the foreclosure sale. Technically, even if the auctioneer receives notice between “going twice” and “sold,” the sale cannot go forward, but most people don’t like to cut things that close.
- – Repossession: Some people want to know if they can get their repossessed cars back after they file bankruptcy. The automatic stay may not help in this situation, but the redemption option does help. If the vehicle has a $4,000 loan balance but is only worth $1,000, the owner can give the lender $1,000 and own the property free and clear.
- – Eviction: The 2005 bankruptcy reform act changed the interplay between eviction and the automatic stay. If the landlord filed a lawsuit and has obtained a judgement, the eviction can go forward even if the tenant files bankruptcy. If the landlord has not yet obtained a judgment, the automatic stay stops the eviction process. Special rules apply in cases involving drug use or property endangerment.
In Indiana, the automatic stay also stops other advanced collection activities, like wage garnishment and IRS bank levies. Section 362 applies even if the underlying debt is nondischargeable. So, if a moneylender is garnishing wages because of a delinquent student loan, that garnishment must stop even if the debtor does not qualify for a hardship discharge.
Can Illinois Moneylenders Bypass the Automatic Stay?
A special set of rules governs “serial filers” who repeatedly file voluntary petitions in order to manipulate the system.
- In Illinois, the automatic stay only lasts thirty days for people who have filed one bankruptcy case in the last year that was subsequently dismissed. The judge will extend the stay, often without a hearing, if the debtor files a motion to extend the stay which shows that this latest case was filed in good faith.
- If there are two or more file-and-dismiss bankruptcies, there is no automatic stay. The debtor can file a motion to impose the stay, and the judge will grant this motion upon a showing of good cause, but it is an uphill fight.
These rules become even more complex if the debtor was a party to a bankruptcy but did not actually file the petition (e.g. Don Debtor LLC filed bankruptcy).
Once the stay is in effect, moneylenders can only proceed with collection activity if they convince the judge that their collateral is at risk. For example, if Debra Debtor is $20,000 behind on her home mortgage, the moneylender may receive permission to proceed with foreclosure, especially if Debra let the insurance lapse.
Count On Experienced Attorneys
Typically, the automatic stay literally stops moneylenders in their tracks. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.