However, debtors frequently face an urgent situation. They may be subject to foreclosure or garnishment. Possibly they have been served, but their response is overdue and in default.
The good news is that, regardless of the debtor's situation prior to filing, as soon as the debtor files, he or she is protected by the ""automatic stay."" 11 U.S. Code 362 outlines the protections of the automatic stay. They prevent the following actions from being taken by creditors:
* Commencing or continuing a garnishment * Commencing or continuing a foreclosure * Commencing or continuing a lawsuit against the debtor * Contacting the debtor * Sending the debtor invoices * Repossessing a vehicle
Essentially, all actions to collect money outside of a domestic support obligation will terminate upon filing. This does not imply that the debtor is not required to continue paying for the use of any of its collateralized assets. Rather, it simply means that the debtor is protected by the automatic stay until the stay expires, which can occur due to the passage of time or a creditor action called a ""motion to lift stay.""
The automatic stay operates differently in chapters 7 and 13, respectively. In a chapter 7 proceeding, the debtor must file a reaffirmation agreement within 45 days of its court appearance to retain its vehicle; otherwise, the stay expires automatically. In a chapter 13 proceeding, the debtor pays off the vehicle as part of its repayment plan, and the creditor must file a """"motion to lift stay"""" to repossess the vehicle. (Note: the technicalities of possibly keeping a vehicle without signing a reaffirmation and whether a debtor would pay off a car in a 13 directly to the creditor or through the trustee will vary according to district).
Additionally, the automatic stay operates differently for personal property versus real property in chapter 7 cases. As mentioned previously, the stay will automatically expire with respect to personal property (typically the debtor's automobile) if the debtor fails to file the reaffirmation agreement specified in its statement of intention within the allotted time. Regarding real property (the debtor's home), the stay remains in effect until the trustee abandons the property, the case is discharged, the case is concluded, or the case is dismissed, whichever occurs first. Consequently, real property stays typically continue until the conclusion of a chapter 7 or 13 case, unless the creditor files a """"motion to lift stay.""""
Lastly, it is essential to note that the debtor loses automatic protection stay if he or she becomes a """"serial filer."""" If this is the debtor's second bankruptcy filing within a calendar year, the automatic stay is only in effect for 30 days and the debtor must file a """"motion to extend stay"""" to keep it in effect for longer. If this is the debtor's third filing within a calendar year, there is no automatic stay and the debtor must file a """"motion to extend stay"""" in order to receive any stay protection. Without a valid explanation for the repeated filings, the debtor's motion may be denied.""
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