If you have a judgement against you from a creditor, it can hurt you. Judgments can hurt in three ways:  1) They allow the creditor to use powerful collection tools against you; 2) A judgment can make you rush into bankruptcy at a bad time; and 3) Under some circumstances, a judgment can make it harder to discharge the debt in your bankruptcy.  This post addresses only the first of these three.

Most creditor and collection-agency lawsuits for debt collection result in judgments against those who owe the debts. That’s because the reason for debt collection suits is to legally establish that the debt is owed, which is usually not in dispute. Also, much of the time the debtors are at the ends of their financial ropes and can’t afford an attorney to find out their options or to defend the lawsuit. So judgments are entered “by default”—meaning the deadline for the debtors to respond passed without any action by them, allowing the creditor to get a judgment. Sometimes debtors do not receive notice that a judgment has been entered against them or they receive notice and do not recognize it for what it is. Thus, many debtors do not realize there are judgments against them, especially when nothing apparently happens for months or even years afterwards. And very few people are fully aware of the possible consequences.

Most people know that a judgment gives a creditor the power to garnish wages and/or to levy against bank accounts. But preventing garnishments by keeping your bank account empty and by not being paid a regular wage often are not enough to make you “judgment proof.” For example, a judgment usually becomes a lien against any real estate you own now or will own in the future. That includes not only property held in your own name but also your rights to property held jointly with a spouse, parent, or through a trust or estate. A creditor has other tools available, including getting a judge to order you to answer questions under oath, in writing, about what you own – in New Jersey, this is called an “information subpoena”.

Beyond the direct damage a creditor with a judgment can do to you before you file your case, such a creditor can cause you problems in your bankruptcy case.

If you file bankruptcy quickly to stop a garnishment or other collection activity, you lose one of your most important advantages: the timing of your bankruptcy filing. Much of what happens in your bankruptcy case turns on exactly when it was filed. Not having the flexibility to pick the best timing can, among other things, turn a Chapter 7 into a Chapter 13, can mean a difference of many thousands of dollars, and can turn a straightforward case that meets your goals into a more complicated matter.

The lesson here is, whenever possible, take the time to see a bankruptcy attorney if you have overall financial problems, particularly if you are being sued. Try not to wait until after a judgment has been entered against you.

Photo by Dennis Wong.

In VERY RARE circumstances, ALL of your creditors can pursue you even if you file bankruptcy. Here’s how to avoid those rare but dangerous circumstances.

In my last post I listed three special classes of debts for which you can still be pursued in spite of filing bankruptcy. They are exceptions to the automatic stay, the broad protection from creditors that you get immediately when your case is filed.  But in this post today I’m talking about a circumstance in which the automatic stay does not apply to your case AT ALL, regarding ANY of your creditors. And about another circumstance in which you can lose the protection of the automatic stay 30 days after your case is filed. 

Because of the huge importance of the automatic stay, you absolutely want to avoid these circumstances, as rare as they might be.

For anybody who is thinking about filing a bankruptcy and has NOT had a previous bankruptcy case filed in their name in the last year, and then dismissed, you can stop worrying about this. Or if you have already filed a bankruptcy case recently and I’m getting you worried here, stop worrying if you did NOT have a previous bankruptcy case filed in your name, and then dismissed, in the year before your present case was filed.

But, IF you filed TWO OR MORE prior bankruptcies in the year before your new one, AND they were dismissed, the automatic stay does NOT go into effect with the filing of the new case.  The automatic stay CAN go into effect AFTER the case is filed if certain conditions are met.

Or, IF you filed ONE prior bankruptcy in the year before your new one, the automatic stay EXPIRES 30 days after the filing date, unless certain conditions are met before then. 

The details of the conditions for imposing or preserving the automatic stay are beyond the scope of this post. What IS of immediate and absolute importance is that you must tell your attorney—AT the BEGINNING of your INITIAL CONSULTATION—if you have filed ANY prior bankruptcy cases, and especially any recent ones.

Now if you’re wondering who goes around filing multiple bankruptcy cases in one year?—it happens more often than you might think.  It tends to come up two ways: 1) A person files a bankruptcy without an attorney, gets overwhelmed by the process and doesn’t follow through, so the case gets dismissed. 2) Or a person hires an attorney, signs some papers, and the case gets filed, maybe without the person even realizing it, and then gets dismissed because he or she doesn’t follow through. In either case, eleven months later they’ve forgotten all about it. Or don’t think it’s important.

The point of these anti-automatic stay rules is to stop “serial bankruptcy filers,” the very, very small minority of folks who file multiple cases, arguably abusing the bankruptcy process, usually to repeatedly delay a foreclosure or some other creditor action.  But these rules can also seriously penalize innocent people in situations like the ones I just mentioned.

Avoid this happening to you by 1) thinking carefully about whether there is ANY possibility that you filed a prior bankruptcy case within the last year, and 2) then telling your attorney if there’s ANY chance that you did. If so, there’s a good chance the bankruptcy court can be persuaded to impose or retain the automatic stay, but only if your attorney knows about the issue in advance and determines whether your case so qualifies.

Photo by MSVG.

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.

 
Photo by I am marlon.

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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