I have seen my fair share of debtors who file bankruptcy without needing immediate relief. They might be current on all their bills and have not even received a single phone call from a creditor, but are overwhelmed by their debt load and do not see any way out besides bankruptcy. In that situation, their filing date is arbitrary and could possibly have waited for month.
However, often debtors have an immediacy to their situation. They might be facing a foreclosure or a garnishment. Perhaps they have been served and the answer is past due and in default.
The good news is no matter which fact pattern the debtor is facing prior to the filing, the second the debtor files, he/she enjoys the protection of the automatic stay. The protections of the automatic stay are laid out in 11 USC 362. They prevent creditors from taking the following actions:
- Starting or continuing a garnishment
- Starting or continuing a foreclosure
- Starting or continuing a lawsuit against the debtor
- Calling the debtor
- Sending bills to the debtor
- Repossessing a vehicle
Basically any act to collect money short of a domestic support obligation is going to cease at the filing. This does not mean the debtor does not have to pay to continue to use any of its collateralized items. Rather, it just means until such time as the stay expires- which can happen through the expiration of time or through a creditor action called a motion to lift stay the debtor is protected by the automatic stay.
The automatic stay works differently in chapter 7 versus chapter 13. For instance, the debtor in a chapter 7 proceeding has to file a reaffirmation agreement within 45 days of its court appearance to retain its vehicle or else the stay expires automatically at that point, whereas in a chapter 13 the debtor would pay off the car as part of its plan and the creditor would actually have to file a motion to lift stay to repossess the car. (Note: the technicalities of possibly keeping a car 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, in a chapter 7 the automatic stay operates differently as to personal property versus real property. As mentioned above, the stay will expire automatically as to personal property (usually the debtors car) if the debtor does not file the reaffirmation agreement the debtor listed in its statement of intention within the allotted time. However, as to real property, (the debtors house) the stay remains in effect until the earliest of the trustee abandoning the property, the case being discharged, the case being closed or the case being dismissed. Therefore, real property stays often last until the end of the case in a chapter 7 or 13 unless the creditor files a motion to lift stay.
Finally, it is important to note that the debtor loses automatic protection stay if he/she becomes what it known as a serial filer. If this is the debtors second filing within a calendar year, the debtor only gets automatic stay protection for 30 days and must file a motion to extend stay, to keep it in force longer. If this is the debtors third filing within a calendar year, the debtor gets no stay and must file a motion to extend stay, to get any stay protection. Without a valid excuse for the repeat filings, the debtors motion might not be granted.