Isn’t a bankruptcy filing supposed to stop all your creditors’ collection efforts against you and your property? Yes, and in fact in many cases a bankruptcy filing does exactly that. Stopping collection efforts is a benefit of filing bankruptcy called the “automatic stay,” because at the moment of the bankruptcy filing, a legal injunction automatically goes into effect “staying,” or stopping, most creditors’ actions against you. But because the automatic stay is something we count on, we had better know its exceptions.

Today I’m just going to list some of the most important exceptions. Then in the next couple of posts I will explain in practical terms these and other important aspects of the automatic stay.

So creditors CAN do the following in spite of your bankruptcy filing:

1) A district attorney or other governmental authority can begin or continue a criminal case against you, such as an indictment, a criminal trial, or a sentencing hearing. This includes not just felonies and misdemeanors, but also lesser matters like traffic infractions that you might not think of as “criminal.”

2) Your ex-spouse, or about-to-be ex-spouse, or somebody on his or her behalf, can start or continue a variety of divorce and family court proceedings. These include legal procedures to establish paternity of a child, determine or change the amount of child or spousal support to be paid, settle child custody or visitation issues, address domestic violence disputes, and even dissolve the marriage. (Although a marriage dissolution usually cannot include a determination about how assets or debts would be divided between the spouses.)

3) Specifically about child or spousal support, the person owed ongoing support can continue collecting it. If there is back support owed, then in spite of a Chapter 7 filing, the person who is owed the support can in most cases start or continue collecting it. This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license, or even a hunting or other recreational license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.

4) Taxing authorities can start or finish a tax audit, can send you a notice that you owe taxes, can demand you to file your tax returns, can assess your taxes and demand you to pay them, and in some situations can even file tax liens against you and your property.

Notice that each of these exceptions involves a special kind of creditor. As I said, the automatic stay stops actions against you by most creditors. But if you are involved in a court proceeding or collection efforts by the criminal or taxing authorities, or by an ex-spouse, be especially aware of these exceptions.

 
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At least in New Jersey, the answer to this question is yes and no. Unless you’ve been sued and a judgment has been entered against you, don’t worry, because a creditor cannot just take your money or property. That’s what due process is all about.

But if a creditor has sued you in court and you either failed to answer the lawsuit or you answered but lost the lawsuit somehow, a judgment can (and probably will) be entered against you. Then, a New Jersey creditor could obtain permission from the court to pursue your assets to satisfy the judgment. This creditor can go after money you have sitting in a bank account, which will result in all of your account’s funds being frozen, at least temporarily. They can also obtain a wage garnishment order to take money directly out of your paycheck before you get paid. While there are other remedies a creditor can technically pursue, these are the two that are used most often. For example, it’s unlikely that a credit-card company is going to take and sell your items of personal property – that’s just too much work for too little return.

Be careful if you have moved recently, or if you never updated your address with your creditors. They might legitimately believe that you live somewhere else and try to serve you with a lawsuit at your old address. The problem is that you might not be aware of a judgment against you. While you might have a legitimate argument that you were not properly served with the lawsuit, it’s highly unlikely to be worth your time and money finding and hiring an attorney to challenge the judgment. If the challenge works, you still have to defend against the lawsuit. If your challenge to the judgment does not work, you are still faced with owing money to your judgment creditor, after having paid an attorney to represent you. Many attorneys (myself included) just don’t think it’s worth even taking these types of cases, especially if the judgment debtor would benefit from a bankruptcy instead.

Bankruptcy can wipe out your personal liability on a judgment debt. However, if the creditor’s enforcement of its judgment rights has resulted in a lien being placed on your property, you may wish to consider taking the extra step of having the lien removed, since bankruptcy cannot wipe out the lien. You don’t need to worry about the lien if you do not own any real estate or if you think you won’t purchase any real estate in the future.

If you are calling attorneys for help because you owe money and you are scared that a creditor is going to sue you and you want to know exactly when this might happen and when it does, how long it will take them to get your bank account/wages/whatever, STOP. Unless you are prepared to do something about it right then and there (such as hiring the attorney to help you file for bankruptcy or to defend against the lawsuit you have already been served with), you have no reason to call attorneys, because they can’t help you. I say this because I often get these kind of calls, where the person calling is just exploding with worry, but has completely closed off any possible remedy because, for whatever reason, they won’t file for bankruptcy, at least not right now.

If you actually wish to discuss the pros and cons of personal bankruptcy, I (and many other attorneys) would be happy to take your call. But if you have done your research and you have closed off the possibility of bankruptcy and you already know what all of your non-bankruptcy options are, please save yourself (and me) the time and don’t call.

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The New Jersey Supreme Court decided Big M on July 16, 2010. The issue in the case was whether tips and gratuities are subject to garnishment. As you may recall, a garnishment can happen when a debt collector who has a judgment against you gets a court order to take part of your pay to satisfy the judgment.

Big M involved a waitress working for Texas Roadhouse Holding, LLC whose wages were being garnished. When her creditor, Big M, got a check for only $4.21 from its $672 wage garnishment, it sued her employer. In the course of deciding the case, the trial court judge determined that tips placed on credit cards are garnishable, but cash tips are not. Then the New Jersey Supreme Court considered the case on appeal.

Looking at both New Jersey law and the Federal Consumer Credit Protection Act (CCPA), the court did not find any law directly speaking to the issue of whether tips were subject to garnishment. So it examined an opinion letter and field operations handbook from the Department of Labor, which enforces the CCPA, and found the opinion that tips, whether paid in cash or charged, are not subject to garnishment. Although the New Jersey Supreme Court is not required to follow a Department of Labor opinion, the court chose to give the opinion consideration and deference.

Big M, the creditor, argued that all tips should be subject to garnishment because they are taxable income for state and federal tax purposes. The court did not find this argument persuasive because the process of counting and recording tip income and reporting it for tax purposes does not allow the employer to exercise enough control over tip income to make it garnishable. The whole idea behind wage garnishment is to capture the income while it is still in the employer’s hands, before it gets paid to the employee.

The court held that the amount of control an employer exercises over tip income determines whether those tips are subject to wage garnishment. If the employer pools all the tips and then divides the pooled amount amongst the employees, then tip income could be garnished. But if the tips are generally paid directly to the employee, even if the tips are charged on a credit card, they are not subject to garnishment.

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Other banks are still involved in the lawsuit, which is in Federal Court in New York. These other banks include Capital One, Chase, Citibank, Discover and HSBC. The lawsuit accuses them of violating antitrust laws by requiring cardholders to enter into arbitration for all disputes.

Many believe that credit card arbitrations are biased in favor of the credit card company.

Earlier this year, National Arbitration Forum, a large arbitration company, dropped out of the credit-card arbitration business as a result of a lawsuit against it.

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One way to get your creditors to stop harassing you is by filing for bankruptcy. But how does filing for bankruptcy stop creditor calls and letters? Through something called the “automatic stay”.

The automatic stay in bankruptcy can be a powerful benefit for debtors who feel that they are being hounded by creditor phone calls and letters. It can prevent further harassment from debt collectors.

After a bankruptcy is filed, creditors must stop attempting to collect on debts as a result of the automatic stay, which takes effect just after filing. Practically speaking, you should wait until creditors receive notice of the filing before they know to stop contacting you.

Or, your lawyer may send out letters of representation to your creditors, which can put a stop to the creditor calls and letters for a while prior to your bankruptcy filing. For example, if the credit card companies are really annoying you, have a talk with your lawyer and see whether letters of representation can be arranged.

Exactly what does the automatic stay protect the debtor from? Debt collection calls, wage garnishment, lawsuits, foreclosure sales, and repossessions.

What types of actions are NOT stayed? Actions regarding family support, such as child support or alimony; criminal prosecutions; and tax assessments or audits.

How long does the automatic stay last? Until the debtor’s bankruptcy discharge comes through or until a creditor asks a judge and successfully gets the automatic stay lifted.

What happens when a creditor violates the automatic stay? Then that creditor may be subject to civil penalties, such as the payment of damages.

If you have a question about bankruptcy, feel free to contact the Hoboken Bankruptcy Attorney at 201-676-0722 or at jweil@jenlawyer.com.

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  On October 21, the Government Accountability Office (GAO) released a new report on debt collection abuses and the current state of legal consumer protections against those abuses.

  The GAO found that current legal protections for consumers facing abuses by the debt collection industry fall short of actually protecting those consumers. Problems such as excessive phone calls and unauthorized fees still exist. In addition, debt buyers often do not have sufficient information about a debt such that they try to collect the wrong amount or try to collect the debt from the wrong person. And enforcement of the existing Federal consumer protection law is lax.

  Sen. Carl Levin is citing the GAO report in his call for the creation of a Consumer Financial Protection Agency. He wants such an agency to enforce the laws, modernize consumer protections to bring them up-to-date with current communications technology, and to monitor compliance with existing law.

  The Federal law protecting consumers against debt collection abuses, the Fair Debt Collection Practices Act (FDCPA), was made law in 1977. That law prohibits the disclosure that a communication is being made in an attempt to collect a debt, which creates a problem with the use of answering machines, voice mail, email, faxes, mobile phones, and caller ID. If the Federal Trade Commission (FTC) had rulemaking authority, the report states, it would be easier for the law to keep up with technological changes and to regulate the debt collectors.

  Also, the FDCPA does not clarify the account information that should be provided when debt buyer purchases a debt, which creates a problem when attempting to verify the debt. The likelihood of a wrongful lawsuit (on the wrong debt or suing the wrong party) increases.
  

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  ]]> http://jenlawyer.com/109/inadequate-protection-from-debt-collection-law/feed/ 1 http://jenlawyer.com/45/got-a-debt-collection-lawsuit-before-your-bankruptcy-is-filed/ http://jenlawyer.com/45/got-a-debt-collection-lawsuit-before-your-bankruptcy-is-filed/#comments Wed, 16 Sep 2009 19:11:22 +0000 jweil http://jenlawyer.com/?p=45 Yet Another Related Posts Plugin.]]>

  

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  Because of the automatic stay, a bankruptcy filing normally stops all lawsuits against you. But for a myriad of reasons, not everyone who is planning to file for bankruptcy can do so right away. If you fall into this category, you especially need to keep an eye on your mailbox for lawsuits so that you can respond to them.

  Because if you’ve been sued by a debt collector or creditor for a debt and you are planning to file for Chapter 7 bankruptcy, you should defend against the lawsuit, unless you are planning to file the bankruptcy sooner than they can get a judgment against you.

  Why respond to lawsuits? Because it slows them down. Debt collectors and creditors count on a large percentage of the lawsuits they file going unanswered. And when a lawsuit goes unanswered, they can get a judgment against you and possibly (depending on what state you live in) collect on that judgment, which may mean taking money from your bank account or garnishing wages.

  Dealing with judgments is just a lot of extra hassle you don’t need when you are on the verge of a bankruptcy. Also, judgments stay on your credit report for a long time.

  So don’t just ignore a lawsuit. Talk to an attorney about it. If you’re not working with an attorney, check out the court’s website to see if there are any instructions for responding to lawsuits. Go to the courthouse and speak with a court clerk. Many courts have ways of helping out people who are representing themselves.

  

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