Are creditors threatening to take your money or property? If you are facing harassing collectors, lawsuits, garnishment, repossession, or foreclosure, the attorneys at Cohen and Cohen can stop these with a bankruptcy. A bankruptcy will immediately put in place the automatic stay.
The automatic stay is a provision found in U.S. Bankruptcy Code under 11 U.S.C. §362 that protects you and your property from being taken by creditors. Any foreclosure sale after your bankruptcy is filed would be void.
The Automatic Stay
The moment your bankruptcy case is filed the automatic stay stops collection and legal activity. This means your creditors must stop pursuing you, and any further actions by them would be illegal. You may then reorganize your finances in a Chapter 13 bankruptcy or quickly discharge your debts in a Chapter 7 bankruptcy without the pressure from your creditors. Once your bankruptcy is complete, a discharge is entered. The discharge permanently stays your creditors’ legal actions and provides you with a fresh start. 11 U.S.C. §524.
Collectors are one of the worst aspects of falling behind with a creditor. They are trained to harass and berate you in order to try and get any money as quickly as possible. Collectors understand that when a person falls behind there may be limited resources. They will do whatever is necessary to try and take those resources even if it means you cannot afford food, shelter, and other basic necessities.
Bankruptcy stops all collector contact, such as collection calls or letters, and absolutely stops any actions being taken by collectors to take your money or property. As soon as the bankruptcy is filled, the Bankruptcy court will send an official letter evidencing your filing to the collectors and they must stop contacting you or they will be violating the automatic stay.
If a creditor decides to file a lawsuit against you, then filing a bankruptcy will immediately stop the lawsuit. The automatic stay makes it illegal for a creditor to pursue a lawsuit and makes any judgment obtained after your bankruptcy filing void.
The Foreclosure Process in Colorado
The automatic stay can help you postpone or stop the repossession or foreclosure of your property.Foreclosure is the legal process by which your property may be sold by the mortgage company or another lienholder.
Once the mortgage company pursues foreclosure, they must provide you with notice of the foreclosure. After you have received notice of the foreclosure, you will be given the opportunity to catch up on past-due payments, attend a hearing, and protect your rights.
If the alternatives offered by the foreclosing mortgage company or through the Colorado foreclosure process do not help you, then bankruptcy may be an appropriate solution to stop your foreclosure. It is important to understand that even if you are behind on your mortgage and in foreclosure, your home is your property and not the mortgage company’s property. This is true until the property is actually sold at the foreclosure sale.
Likewise, a creditor who has a secured interest in your vehicle and wants to repossess the vehicle can no longer do so after the bankruptcy is filed. A creditor who wants to foreclosure on your house is in the same situation and any sale must be stopped immediately.
Filing bankruptcy gives you options. Bankruptcy will allow you to hold onto your car or home until you can negotiate or modify your agreement with the creditor, surrender them at a later date so you may replace a car or move before repossession or foreclosure occurs, or get caught up on payments in a bankruptcy payment plan so you can keep your property.
In addition, you may take advantage of bankruptcy laws such as:
- Redemption, which allows you to walk away from your current car loan and finance the car at its current value and a lower payment.
- Cramming, which allows you to pay only the current market value of your vehicle during bankruptcy and keep the vehicle after your bankruptcy is complete.
- Lien stripping, which allows you to remove a second or higher mortgage from your home.
Differences in Chapter 7 v. Chapter 13 Bankruptcy and Foreclosure
The type of bankruptcy filed will determine whether the foreclosure will just be postponed or whether you will be using bankruptcy to pay back arrearages and keep your home.
Chapter 7 bankruptcy will stop foreclosure on your home; however, since Chapter 7 bankruptcy does not have a plan of reorganization, then Chapter 7 is only a temporary solution to stopping foreclosure. Once the foreclosing mortgage company requests the automatic stay be lifted or the bankruptcy case is discharged, then the mortgage company may begin the foreclosure process where they left off.
However, this does not mean a Chapter 7 cannot help you keep your home. By eliminating expensive debts, such as credit cards or high monthly auto loan payments, then you may be able to afford to pay your mortgage. After you file Chapter 7, you would want to begin discussing your options for modifying your mortgage with your lender in order to save your home.
In the alternative, if you file a Chapter 13 bankruptcy, then you do not need to have a separate agreement with the mortgage company to keep your home. The bankruptcy will stop your foreclosure, allow you to reorganize expensive debt, begin making regular payment after your case is filed, and permit you to catch up on arrearages over 3-5 years.
In addition, in Chapter 13 bankruptcy you can remove second or higher mortgages and liens placed on your home as long as the value of the home is equal to or less than the amount you owe on the first mortgage. Bankruptcy attorneys call this lien stripping. It can save you thousands of dollars and help you afford to keep your home.
Wage Garnishment and the Automatic Stay
In most cases a creditor must file a lawsuit, receive a judgment, and then request a Writ of Garnishment in order to take money from your bank account or garnish your paycheck. However, certain creditors, such as the IRS or student loan providers, do not need to take you to court. Regardless, filing bankruptcy will stop even these creditors from further garnishment and collections.
The automatic stay will stop a garnishment at any point. If you are concerned you will be garnished shortly or have already been garnished, then the bankruptcy filing will put an immediate stop to any further money being taken. In certain circumstances, your bankruptcy attorney can even get your money back. If it is important to stop a garnishment right away, your bankruptcy attorney can file your case and immediately get in contact with the appropriate people to stop any further garnishment.
Exceptions to Automatic Stay Stopping a Lawsuit
Your lawsuit will be stopped by your bankruptcy attorney after the filing of your case. Once the case is filed, the bankruptcy court will send an official letter to the attorneys or creditor handling the lawsuit. In addition, if there is a court date that needs to be stopped quickly, then your bankruptcy attorney can immediately put the creditor on notice of your filing and in most cases stop you from having to appear in court.There are few exceptions to the automatic stay stopping a lawsuit. However, they are worth mentioning in case they apply to your situation. Here are some common examples of legal proceedings the automatic stay will not stop:
- criminal legal proceeding
- establishment of paternity
- legal proceeding for child support or spousal support
- child custody or visitation proceedings
- divorce except to the extent the divorce is determining the division of property
- proceeding in regards to domestic violence
- suspension or restriction of a driver’s license, recreational license, or professional license
Taking the Next Step to Stop Creditors
The next step is to meet with an experienced bankruptcy attorney to protect your interests, determine alternatives, or file a bankruptcy to stop collections, lawsuits, repossession, or foreclosure. At Cohen and Cohen, we can help you understand your options and make important legal decisions.
To schedule an initial consultation to review your case at our convenient central Denver location, call 303-933-4529 or fill out our online contact form.
About the Author: Robertson Cohen
Rob Cohen is a Managing Partner of Cohen & Cohen, P.C., serving clients in Colorado and Wyoming. He’s a Chapter 7 Bankruptcy Panel Trustee, certified mediator, and has administered over 8,000 Chapter 7 bankruptcy estates.