One of the most common inquiries I receive is: “My credit card debt is killing me and the creditors are calling and harassing me and they are threatening to garnish my wages. What should I do?”
Depending upon the caller’s complete financial profile, the answer might very well be to file a Chapter 7 Bankruptcy.
If the prospective client is eligible to file, which I will discuss further below, a Chapter 7 filing provides to the filer one immediate benefit that is one of the more powerful tools in all of the law, that is, the automatic stay.
Under the Bankruptcy Code, immediately upon the filing of a Bankruptcy proceeding, almost any activity by a creditor against a debtor that would otherwise be permitted under applicable state or federal law must cease.
Of first importance in the above observation is that the automatic stay commences not at the conclusion of the debtor’s bankruptcy case, but at the very beginning, upon the filing of the proceeding.
For example, if my caller’s credit card payments are only a month or two behind and the creditors are merely sending out nasty notices and/or calling him or her on a maddeningly regular basis, the bankruptcy filing means that the calls and mailings must immediately stop. If they do not, and the Court becomes aware of same, the creditor can be made to pay monetary sanctions and attorneys fees.
Let’s proceed a step further and assume that the caller waits to call me until after the accounts have gone into such a stage of default that the creditors have commenced lawsuits against the caller. Is it now too late for the filing of a Bankruptcy to help?
Absolutely not. The power and reach of the automatic stay is such that it effectively requires the creditors to stop wherever they are at the time of the their receipt of notice of the Bankruptcy filing. In other words, if a suit has commenced against a filing debtor, the suit must stop in its tracks as soon as the debtor files the bankruptcy, even if the suit is almost concluded.
In fact, the power of the stay extends even further. Even if the creditor has concluded the suit against the debtor and has obtained a judgment, the creditor cannot commence otherwise further legal actions against the debtor on the judgment, such as bank account restraints, wage garnishments and so forth.
To take the scenario one step further, even if the creditor has already commenced garnishments and/or bank restraints, the filing of a Chapter 7 will stop the process wherever it is. In other words, if the creditor has restrained the bank account but not yet received the funds from the debtor’s bank, the money in the account will be saved. Although the debtor can’t recoup what the creditor has already garnished from the debtor’s wages, no further post-filing paychecks may be garnished.
As mentioned above, there are certain qualifications to file a Chapter 7.
One of the most straightforward is that a prospective filer cannot have obtained a Chapter 7 discharge within the past eight (8) years. If he or she has, we would have to wait for the expiration of the eight (8) year bar to expire, before we could file.
Another qualification is based on the debtor’s income. After the Bankruptcy reform laws in 2005, all prospective filers must complete what is called a Means Test form, which tracks the amount of income the debtor has received in the most recent six (6) month period. If the Debtor has earned too much, according to the forms, in that period, he or she cannot file a Chapter 7. If, however, the income will decrease in the ensuing months, the debtor may be able to file a Chapter 7 in the future.
There are other reasons why, although a debtor would qualify to file a Chapter 7, I would not recommend it. One example, which will be discussed in future blogs, is where the debtor owns significant assets which might be lost to the Chapter 7 Trustee.
If you feel overburdened by consumer debt and fear future or continued legal action by your creditors, feel free to call us for a free consultation, so we can assess your options.