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What is the automatic stay and how does it help me?

stop foreclosure with the automatic stayMany people who file bankruptcy do so to seek relief from their debts.  This is a given.  However, there are other benefits to filing for bankruptcy that in many cases far outweigh the simple aspect of discharging unsecured debt.  Perhaps the most significant of these benefits is the enactment of the automatic stay, pursuant to 11 U.S.C. § 362(a).

What this law does is effectively stops all attempts to collect on debts incurred by a consumer or business prior to filing of the bankruptcy.  As an analogy to the world famous board game Monopoly, imagine a giant stop sign being held up to all of your creditors and telling them stop, do not pass go to not collect $200.  This is the law that tells your creditors that they can not continue to harass you by filing law suits, continuing collection attempts or even placing those annoying phone calls and sending threatening letters.

This law is so important and so powerful that it is the number one strategy to stop foreclosures.  If you have a foreclosure scheduled for 9:00 AM tomorrow morning and you were to file a bankruptcy case at 8:55 AM tomorrow morning, then by the letter of the law, the foreclosure sale can not proceed.  Now of course, it may not be practical to stop a foreclosure sale with 5 minutes notice, unless you have a person at the sale to inform the auctioneer.  However, so long as your case is filed, and you provide proof of the bankruptcy filing, and case number to the creditor or their law firm conducing the sale, the creditor could be heavily sanctioned for violating the automatic stay.

In other situations, the stay can be very powerful in that it stops creditors from taking possession of any of your money, through a wage garnishment or bank account attachment.  Even if the Creditor takes money from your pay check due to a garnishment order, they must return it to you.  Should the creditor fail to give you back your money in a timely manner, they will be potentially liable for payment to you of actual damages, including cost and attorney fees and possibly punitive damages should a showing of an intentional violation be found.  See McMullen v. Sevigny (386 F.3d 320, 330 (2004)) citing 11 USC s.362 (h).  Under the Bankruptcy Code § 362(h), a violation will be found “willful” if the creditor’s conduct was intentional (as distinguished from inadvertent), and committed with knowledge of the pendency of the bankruptcy case. See Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265, 268-69 (1st Cir. 1999).   Even if the Creditor claims that its violation was unintentional, a creditor that commits a technical violation of the automatic stay, due to lack of notice, has an affirmative duty to remedy the violation as soon as practicable after acquiring actual notice of the stay. See In re Will, 303 B.R. 357, (Bankr. N.D. Ill. 2003).

What this all means in plain simple English is that the automatic stay shifts the power from your creditors back to you with respect to your assets and property.

Wake up call on Projected Income in a Chapter 13 case

I wrote a blog a few weeks back about personal injury cases and the projected income issue that they cause for a debtor. The reality is that projected income is becoming a new trend for Chapter 13 Trustees as well as Courts to really take a look at. The power behind this new trend comes with the amendment of 2005 to the bankruptcy code.

The 2005 Amendments to the Bankruptcy Code changed the definition of “disposable income” as well as the total practice of Chapter 13 bankruptcies. Congress changed the definition of “disposable income” by tying it to a new term, “current monthly income,” 11 U.S.C. §1325(b)(2), and adding the definition of “current monthly income” that in relevant part, as noted above, looks at the debtor’s six-month pre-petition income, id. § 101(10A)(A)(i). Finally, Congress added a new clause to §1325(b) that, for above-median debtors, requires the use of the standardized expenses and deductions calculated on Form B22C as the “[a]mounts reasonably necessary to be expended” under §1325(b)(2) (with the exception of charitable contributions under (b)(2)(A)(ii)). See id. §1325(b)(3) The result is that a Chapter 13 plan payment will no longer be determined on disposable income as of the date of filing the Chapter 13 case but on all income as of the date of filing and any “projected disposable income.”

What does all this mean? The Trustee and the courts in dealing with a Chapter 13 case have awoken up to the fact that they can and will require a Chapter 13 Debtor to provide for and hand over any and all project income that they anticipate receiving in the life of the plan. I am writing this blog because debtors and their counsel better wake up on this very issue. A Chapter 13 plan design must include tax returns, bonuses, raises, personal injury settlements, inheritances and etc. A debtor as well as their counsel must consider all of these factors in deciding to file a Chapter 13 case.

For about seven years or so, Trustees as well as courts resisted the change and way of thinking. However, they all got the wake up call and now are embracing the power and executing on that power. Debtor’s counsel better be prepared to deal with this new found trend and to provide the forward thinking for their clients. So, a new must question for a debtor in dealing with a Chapter 13 case is “any anticipated income in the near future?”