Know when you would have no automatic stay upon filing your case, and be ready to establish your “good faith.”
Never Getting the “Automatic Stay”
Last time we talked about the bad situation of losing the “automatic stay” as to all of your creditors. This loss could happen automatically 30 days after you file your bankruptcy case. The automatic stay is the extremely important protection from creditor collections that goes into effect the moment you and your bankruptcy lawyer file your case. We showed how losing this protection would in most cases make a bankruptcy case largely ineffective. Protection from creditor collections is such a basic part of filing bankruptcy.
If losing the automatic stay 30 days after filing your case is bad, there’s a twist that’s even worse. Under other but similar circumstances the automatic stay protection could simply never go into effect when filing your case.
More than One Prior Dismissed Bankruptcy within 1 Year
So how could filing bankruptcy NOT provide you the protection of the automatic stay?
- during the one-year period before filing a new case you were in two or more prior bankruptcy cases, and
- those prior cases were “dismissed” (thrown out and/or closed before being completed).
Then the automatic stay “shall not go into effect upon the filing of the later case.” Section 362(c)(4) of the U.S. Bankruptcy Code.
The Automatic Stay MAY Go into Effect 30 Days Later
If you and your Louisville bankruptcy lawyer act quickly, there’s a good chance the “automatic stay” could still go into effect. You simply need to show the bankruptcy judge that your new case was filed “in good faith.” You need to show that it’s not as an abuse of the bankruptcy system. If successful, the automatic stay would usually be imposed on all of your creditors as usual. It would remain in effect throughout the remaining life of the case, unless a future court order says otherwise.
What’s Good Faith?
Good faith means honesty, sincerity of intention.
As mentioned above, in this context it means that your filing of the current bankruptcy case is not an abuse of the law. The main abuse that the law was designed to prevent is serial filing.
That was a practice that wasn’t directly forbidden under the bankruptcy statutes. However, arguably it took inappropriate advantage of the law.
A person who wanted to stop some creditor action—say a home foreclosure—would file a bankruptcy case. That would impose the automatic stay and stop the foreclosure. At some point the person would fail to take a necessary step in the bankruptcy case. He or she would not file a required document or not appear at a required hearing. So the court would dismiss the case. That would enable the creditor to resume the foreclosure procedure. But then just before the foreclosure sale the person would file another bankruptcy case to stop that sale. Then the person would repeat the cycle.
Congress changed the law to stop such serial filings by automatically preventing the automatic stay from being imposed after two bankruptcy filings and dismissals within one year.
The Presumption of Bad Faith
Under certain circumstances you need to show the court stronger evidence to establish the required “good faith.” You need to present “clear and convincing” evidence of your “good faith if:
- the prior case’s dismissal resulted from your failing to
- file required documents at court “without substantial excuse”
- “provide adequate protection as ordered by the court” (see our blog post of Oct. 17, 2016 about “Adequate Protection”)
- “perform the terms” of a court-approved payment plan
- “there has not been a substantial change in [your] financial or personal affairs” “or any other reason to conclude” that the new case will be successful
If you can produce the necessary evidence that the new case was filed in “good faith,” then the automatic stay would go into effect the day the judge enters an order stating so.