Immediately upon a bankruptcy filing of any chapter, the Automatic Stay Provision of the bankruptcy code applies, thereby protecting the debtor from the creditors’ collection efforts. This means that no matter what type of bankruptcy case is filed, no creditor may proceed or commence a lawsuit against the debtor for money or property.
The Automatic Stay Provision stops the following actions: creditors’ correspondence, such as telephone calls and collection letters; bank and property levies; wage garnishments; lawsuits; utility shutoff; auto repossessions; foreclosure actions; prevent drivers’ license suspension and/or reinstate drivers’ license, under certain circumstances; prevents sale of property; filing of liens; possible limited protection from support arrears; delay collection from student loan creditor.
The Automatic Stay works as follows. If the bankruptcy petition is filed prior to the creditor commencing a lawsuit against the debtor, than the creditor may not file the lawsuit. Immediately upon the bankruptcy filing, the lawsuit process stops. If the debtor files a bankruptcy case, after the lawsuit is filed and before the answer is due, than the debtor need not file an answer. If the debtor files the bankruptcy petition after the creditor obtains a judgment from the lawsuit, than the creditor may not attempt to collect money on the judgment.
A finance company may not repossess an auto if a bankruptcy case is filed, after the debtor is behind with payments, but before the auto is repossessed. If the auto is repossessed and not yet sold, the bankruptcy filing, may allow the debtor to obtain possession of the vehicle, under certain circumstances.
The chapter 7 process is about four months long. After the four months, the debtor is completely out of the bankruptcy case, with an order of discharge. The discharge order completely eliminates certain debt, including all unsecured debt. Unsecured debt is debt that is not connected to collateral or property, such as credit card debt and personal loans. The bankruptcy code has a list of specific types of debt that is not discharged, including, but not limited to, child support, alimony, some types of tax debt and student loan debt. You may eliminate a mortgage if you do not wish to keep your house. Additionally, auto debt may be eliminated, if you are surrendering your auto. A chapter 7 will not permit someone to save an auto or house if behind with payments.
A chapter 13 requires monthly payments to a trustee for 36 to 60 months. The number of payments varies based on numerous factors. A person that does not meet the chapter 7 criteria may file a chapter 13 to pay back a portion of their unsecured debt. Also, a chapter 13 may permit someone to save a house from foreclosure and a car from repossession. Under certain circumstances, a chapter 13 may permit the elimination of a second mortgage. Also, a chapter 13 permits a person to proceed through the loan modification process.