Automatic Stay Basics

When people are on the verge of filing bankruptcy, they all have one thing in common: they are all getting hassled by annoying creditors. Creditors have been known to use many “techniques” in order to settle up all debts. The most common form of this is calling, and calling, and calling. The person in debt is in quite a difficult situation now. They know that they owe the money, but they don’t have enough to pay.

This is where the automatic stay comes into play. The automatic stay is a court order that halts almost all collection proceedings. In order for the automatic stay to become effective, a person only needs to file bankruptcy with the bankruptcy clerk’s office. If there is a dismissal of a previous case that was filed within a year, then the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has set some limitations on the protections that the automatic stay provides. The BAPCPA also states that if this is a third filing within a year, then the automatic stay will provide no protections at all.

While the stay will eliminate most of the creditors from harrassing you, there are a few exceptions. The most notable exception is in eviction proceedings. If the landlord has possession of the property before the person has filed bankruptcy, then the automatic stay will continue. There are also several other exceptions dealing with the eviction process.

Origins of the Word Bankruptcy

The term bankruptcy is a combination of the Latin bancus and ruptus. Bankcus refers to a bench or table, and ruptus refers to being broken. Originally, a bench or table meant a bank. So when a banker failed, he would “break his bank” to let everyone know that he was no longer in a condition to continue on with business.

This was a common practice in Italy, and the Italian term for bankruptcy is banco rotto. In France, the French terms banque and route were used.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

On April 14, 2005 the 109th United States Congress passed what is know as the The Bankruptcy Abuse Prevention and Consumer Protection Act, which drastically changed bankruptcy law in the United States. President George W. Bush signed the act into law back on April 20, 2005. More commonly known as the “New Bankruptcy Law,” its main purposes were to make it much harder for the consumer to discharge debt using a chapter 7 bankruptcy, and to encourage the use of chapter 13 bankruptcy.

In order to make it more diffucult to file a chapter 7, the chapter 7 means test was developed. The chapter 7 means test lays out conditions that must be met in order to be elgible to file a chapter 7. There were also various other requirements that were defined in order to qualify for filing bankruptcy:

1) Mandatory credit counseling and debtor education
2) Additional filing requirements and fees
3) Increased attorney liability and costs
4) Fewer automatic protections for filers
5) Increased compliance requirements for small businesses
6) Increased amount of debt repayment under Chapter 13
7) Increased length of time between discharges

What is a Bankruptcy Automatic Stay?

Basically, a bankruptcy automatic stay is defined as an automatic injunction that puts a temporary halt on actions by creditors to collect debts from someone that has legally declared bankruptcy.

This is written in section 362 of the United Stated Bankruptcy Code, which states that the automatic stay becomes in effect at the moment the bankruptcy petition is filed.

However, it is possible for secured creditors to petition for relief from the stay if good cause is proved.

Debt Consolidation

Often times when people accumulate a lot of debt, that debt is spread across many different loans, which makes the process of getting their life back together a very difficult process. This is where debt consolidation come in. Debt consolidation is the process of taking out a single loan in order to pay off many other loans.

Consolidating debts often are a good way of securing a lower interest rate, securing the loan at a fixed interest rate, or just a good way to organize making payments.

Other benefits can even include getting a discount on the total amount of the loan. Creditor’s will agree to this because they fear that they will not get paid at all and will take whatever they can get.

Secured Debt

Secured debt is defined as debt that is secured by collateral of equal value in order to reduce the risk that are involved with the different types of lending. The most common example of a secured debt would be a mortgage, where the actual house is the collateral towards the loan. The collateral that are assets backing the debt are noted as security, and may be taken by the lender when a default occurs.

Unsecured Debt

An unsecured debt is defined as a debt that is not tied to any property. Creditors have no claim to these debts if you have filed for bankruptcy, and must sue in order to gain back their assets (this rarely happens).

The following is a list of common unsecured debts:

- Credit card debts
- Rent
- Utility bills
- Hospital and doctor bills
- Most taxes
- Student loans
- Personal injury actions against the debtor
- Parking tickets and moving violations
- Personal loans
- Auto loans
- Loans from relatives and friends
- Debts as a co-signer
- Restitution debts
- Debts arising from driving under the influence of alcohol or drugs

Bankruptcy in Canada

Canada bankruptcy law is defined in the Bankruptcy and Insolvency Act laid out in the Canadian federal law. It applies to both businesses and individuals.

It is the responsibility of the office of the Superintendent of Bankruptcy that all bankruptcies are administered fairly and orderly.

It is the responsibility of the trustees to administer bankruptcy estates. Their duties are to review and file for any fraudulent preferences or reviewable transactions, chair meetings of creditors, sell any non-exempt assets, object to discharges, and finally to distribute funds to creditors.

Homestead Exemption Laws

Most of the homestead exemption laws are defined as state statutes, but in some circumstances there are constitutional provisions. The purpose of the legal regime is basically to protect the value of homes from creditors, property taxes, and from the death of the homeowner’s spouse.

The homestead exemption laws have the following aspects:

1) To prevent the forced sale of a home to meet the demands of creditors
2) To provide the surviving spouse with shelter
3) To provide an exemption from property taxes which can be applied to a home

Bankruptcy Fraud

As defined by the law, committing bankruptcy fraud is considered a crime. Bankruptcy fraud includes concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements. If you have put incorrect or inaccurate information on filling out bankruptcy forms, this is considered perjury. Bankruptcy fraud is completely different than strategic bankruptcy, which is using bankruptcy as a tool to benefit the filer.