The last few blog posts have been about situations in which the automatic stay is temporary, but still very effective. These situations have involved individual debts or sets of debts—such as income taxes or student loans. The automatic stay’s protection from debt collection in a Chapter 7 case is temporary for debts which survive the bankruptcy case because the automatic stay expires once the case is completed—usually just 3-4 months after filing. But that may be fine with income taxes and student loans for reasons explained in the last two blog posts.
Today we get into a situation much more dangerous. Here you could lose the automatic stay protection from debt collection as to ALL your debts.
The Automatic Stay
We start first with a bit of background. One of the most important and immediate benefits of filing bankruptcy is the automatic stay. This is the federal law that stops creditors from collecting your debts immediately when you file your bankruptcy case. It protects you, your income, and your assets. The automatic stay usually provides this protection as long as your case is open. (See Section 362 of the U.S. Bankruptcy Code.)
This is a crucial to bankruptcy relief. You certainly don’t want to lose this tremendously important benefit of bankruptcy. You especially don’t want to lose it unexpectedly, just when you are most counting on it. Yet there is a situation this could happen, so you want to know about and prevent it.
Losing the Automatic Stay
You could file a bankruptcy case and lose his protection essentially without warning 30 days later. The situation at issue is if you are now considering filing a bankruptcy case and you filed one prior bankruptcy within the last 365 days, which was subsequently dismissed. (See Section 362(c)(3) of the Bankruptcy Code.)
Don’t immediately assume this does not apply to you. IF you didn’t even think about and take ANY action to file a case in the last 365 days then in fact this problem likely doesn’t apply to you. But be very careful. We have seen circumstances when a prior bankruptcy was filed and dismissed without the debtor being fully aware of it then and so without remembering it later when filing another case later.
Avoid Losing the Automatic Stay 30 Days After Filing
Assume that about 10 months ago you had filed a bankruptcy case. But immediately after filing you settled the debt that had pushed you into bankruptcy. So you didn’t take any further action on your bankruptcy case, and it got dismissed (thrown out and closed).
Now, many months later, your other creditors are causing you big trouble so you again file a bankruptcy case. You don’t consider the prior case to have been a real bankruptcy filing because you didn’t follow through on it. In fact you somewhat understandably consider the new case to really be your first bankruptcy filing. You may not even tell your Louisville bankruptcy lawyer about the prior filing.
But that would be a mistake. The automatic stay would immediately go into effect with the current bankruptcy filing as usual. However, the automatic stay would automatically expire 30 days later. That is, it would expire unless by then you and your lawyer would show the court that you meet certain conditions.
Those conditions involve justifying why the previous case was dismissed and why the present case is being filed. Depending on the exact circumstances, you may be able to justify filing a second case within a year. These circumstances involve the reasons for the prior case dismissal, and financial changes from the prior filing until the present one. (Again, see Section 362(c)(3).)
However, if you are not be able to convince the court, you’d be subject to ongoing debt collection from 30 days after filing until the court discharged your debts 2-3 months later. That would make for an unexpected mess, and likely quite an expensive one.
So, make sure there was no prior filed and dismissed bankruptcy case within the last 365 days before the filing of your current case. If there was one, consider waiting for a full year to pass before filing the new case. If that’s not feasible, discuss with your lawyer whether your circumstances would result in your bankruptcy judge preserving the automatic stay because your prior filing/dismissal and new filing were justified.