Chapter 7 Timeline
The moment a bankruptcy petition is filed, every creditor anywhere is barred by court order from doing anything to collect any debts from a debtor. These creditors are under court order to:
Not call the debtor.
Not call the debtor’s relatives, friends, or co-workers.
Not contact the debtor in person.
Not send letters.
Not continue with any foreclosure.
Not continue with any repossession.
Not continue with any lawsuit, even one that has already started.
Not take any more money out of the debtor’s paycheck.
Not take any more money out of the debtor’s bank account.
Not do anything at all to collect the debt.
In short, when a debtor signs the bankruptcy petition, they are writing their own court order that will require everyone, under the contempt powers of the court, to cease all collection activities.
As soon as creditors are notified by any means of the bankruptcy filing, they must comply with this court order, or face severe penalties. This order is called the “automatic stay.”
Emergency Petition Filing
Sometimes the debtor needs to file a petition immediately to avoid certain collection activities, which may include foreclosure or harmful contact from creditors. Fortunately, bankruptcy petitions can be prepared in as little as a few hours, if needed.
Debtors should expect to pay more for this last minute service, but when needed, last minute help can seem like a real life saver. The problematic creditors can be contacted directly by the attorney and given notice of the filing, which gives immediate effect to the court ordered automatic stay.
Duration of the Automatic Stay
The automatic stay is a temporary injunction against any creditor from doing anything to collect a debt from the debtor. It usually lasts until the bankruptcy case is over, which is usually about 100 days.
For debts that are discharged in bankruptcy, when the temporary stay expires at the end of the bankruptcy case, a new, permanent injunction is put in place that bars creditors from ever trying to collect on the discharged debt. Both the temporary and permanent injunctions also apply to any collection agency to which the original creditor might sell your account. The debt is forever dead.
Early Termination of the Stay
Secured loans are also included in the automatic stay. However, in some cases, the creditor may be able to have the stay lifted for certain assets. For example, creditors sometimes try to get earlier control of properties that have no equity so that they can protect them from falling into disrepair or being vandalized.
This action is called a motion for relief from the automatic stay. For a home with no equity and payments that are seriously delinquent, the stay may be lifted in as early as 2-1/2 weeks from the date of filing. In most cases, however, the stay is not lifted until two months or so after the date of filing.
Keep in mind that the lifting of the stay does not equal foreclosure. It just means that the lender can resume the foreclosure process at that point. If the debtor is not seriously delinquent on the loan payments, then foreclosure is unlikely to follow soon.
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