When you file for Chapter 7 or Chapter 13 bankruptcy, in most cases an “automatic stay” will put a halt to any lawsuits filed against you by creditors, and stop most suits against your property brought by government entities or collection agencies. If you risk being foreclosed on, evicted, or found in contempt of court by not paying child or spousal support, or even having your utilities shut off or your welfare benefits garnished, and automatic stay is a strong incentive to take action and file for bankruptcy in New Mexico.
An automatic stay comes into play in several common situations:
Utility disconnections: If you’ve fallen behind on your utility bills and the gas or electric company has threatened to disconnect your utility services, an automatic stay can stop the disconnection in its tracks for up to twenty days. Though the total of a single utility bill does not often justify filing for bankruptcy on its own, preventing the shutoff of your electric in February in North Dakota might in fact be good justification to do so.
Foreclosure Actions: If your home is being foreclosed on, an automatic stay can halt the foreclosure proceedings at least temporarily. However, your mortgage creditor will in many cases be able to go ahead with the foreclosure eventually. If you do unfortunately face foreclosure on your home, Chapter 13 bankruptcy (for more information see our article about Chapter 13 Bankruptcy Qualification) is generally a more sound solution than Chapter 7, if your goal is to keep your home.
Getting Evicted: If you face being evicted from your place of residence, an automatic stay might offer some assistance, but unfortunately, newer bankruptcy laws do make it less difficult for a landlord to go ahead with an eviction. If there’s already been a judgment of possession rendered against you at the time you file for bankruptcy, an automatic stay is unlikely to have any effect on the eviction proceedings. In this situation, a landlord could proceed normally, as if you filed ad never filed for bankruptcy. Also, if your landlord claims that your actions have been endangering the landlord’s property, or that you or your guests have used illegal drugs on the premises, an automatic will be of little to no help to you. In some situations, an automatic stay can buy you a few days or even weeks, but it’s likely that your landlord will petition the court to lift the automatic stay, allowing the eviction proceedings to go forward. Generally, the court will oblige and grant the landlord’s request.
Collection of public benefits overpayments: If you were overpaid in your receipt of public benefits like welfare, the paying agencies are generally allowed to demand return of the amount you were overpaid, by reducing the amount of your future payments. An automatic stay can stop the collection. However, if you later become ineligible for benefits, an automatic stay will not stop an agency from terminating or denying you those benefits.
Wage garnishment: Once you’ve filed for bankruptcy, wage garnishments will be immediately halted. Not only will you be entitled to receive your full paychecks, but you might also be permitted to discharge the debt which led to the garnishment in bankruptcy. Many people end up filing for bankruptcy when multiple garnishments are threatened against them, as each individual garnishment may take up to 25% of a person’s earned wages. This number jumps up to as much as 50% in cases of unpaid child support or spousal alimony.
In some situations unfortunately, an automatic stay is powerless:
Some tax proceedings: Evan after you’ve filed for bankruptcy, the IRS nonetheless retains the ability to audit you, request a tax return, or demand payment of a tax assessment. The automatic stay can halt the IRS from imposing a tax lien against property or seizing property and income, however.
Multiple filings: If you already had a pending bankruptcy case during the year before you again filed for bankruptcy, an automatic stay will last only thirty days. However, the stay can be continued if you, a creditor, the trustee, or a U.S. trustee asks that the stay be continued and is able to prove that your newest bankruptcy filing was filed in good faith. If there was a pending motion by one of your creditors to lift the automatic stay in your previous bankruptcy case, then a court will assume that you filed the newer action in bad faith. You will need to rebut this assumption in order to continue receiving the protection of the automatic stay in your newer case.
A criminal proceeding: If there are criminal proceedings pending against you which can be separated into a “debt component” and a “criminal component,” the criminal component will be parsed out and will continue despite the automatic stay. For example, if Neil is convicted for check fraud and sentenced to community service and payment of fines, Neil will have to continue his community service and fine payments regardless of the automatic stay that kicks in when Neil files for bankruptcy.
A support action: Any suit against you which seeks to modify or collect spousal support or child support, or whose purpose is to establish paternity of a child, will not cease when you file for bankruptcy.
Pension loans: Even when an automatic stay kicks in, your income may be withheld if you have outstanding loans from a certain kinds of pensions, including the majority of job-related and IRA pensions.
In most cases, creditors can avoid being stopped by an automatic stay by simply requesting that the court lift the stay, and alleging that the stay is not serving the purpose for which it is intended. For example, imagine Lee files for bankruptcy two days before his home will be sold in foreclosure. Also imagine that Lee has zero equity in the home, he is unable to pay his mortgage arrears, and he has no means by which to retain the property. The creditor in charge of the foreclosure is likely to request that the court give the creditor permission to go ahead with the foreclosure, and the court is likely to grant such permission.