When you file a Chapter 7, 11, or 13 bankruptcy, the automatic stay prevents creditors from trying to collect debts from you. This means they can’t contact, bill, or sue you or undertake other collection activities like repossessing your property or garnishing your wages. However, this protection may be limited in time, or not available at all if you have filed a previous bankruptcy. Read on to learn the bankruptcy rules regarding the automatic stay and repeat bankruptcy filings.
(For details on the automatic stay, including when it kicks in, when it ends, and what activities it prohibits, see the articles in Bankruptcy's Automatic Stay.)
Two Bankruptcies Within One Year: Stay Limited to 30 Days
If you filed bankruptcy and then file another bankruptcy within one year of the dismissal of the first case, there is a presumption that you filed the second case in bad faith, and the automatic stay will expire after only 30 days (11 U.S.C. § 362(c)(3)).
If you are able to prove to the court that you filed the second case in good faith with regard to the creditors that you wish to have stayed (meaning you didn’t file repeatedly just to hold particular creditors, such as mortgage lenders, at bay), the court may extend the automatic stay. To do so, you must file a motion and prove to the court, by clear and convincing evidence, that you filed the most recent case in good faith.
Three Bankruptcies Within One Year: No Automatic Stay
If you filed two or more bankruptcies in the previous year, and then file a third bankruptcy, the same presumption of bad faith exists, and the automatic stay will not take effect at all upon the third filing (11 U.S.C. § 362(c)(4)). You may file a motion with the court and ask for the automatic stay to be imposed, but again, you must present clear and convincing evidence that you filed the most recent bankruptcy in good faith.
Asking the Court to Impose the Stay or Extend it Beyond 30 days
The court may institute the automatic stay or extend the stay beyond 30 days. To ask the court to do this, you must file a motion that explains why your current bankruptcy was filed in good faith.
If your previous bankruptcy was dismissed because you failed to file required documents in a timely manner or amend your petition as required by the court, the court may decline to impose or extend the automatic stay, unless you were represented by an attorney and the error was his or her fault.
Or, if your personal or financial circumstances have not changed substantially since your last filing, or the court has reason to believe that you will not be able to complete your bankruptcy (and is likely to be dismissed again), the court may also decline to grant your motion.
Joint Bankruptcy Filings
If you filed an individual bankruptcy that is later dismissed, and you file a joint bankruptcy with your spouse within the same year, the restrictions on the automatic stay will apply only to you. This means that while your automatic stay may be restricted, your spouse will be entitled to the protection of the automatic stay, unless he or she also had previous filings within the same year.
If the Stay Is Not In Effect: What Can Creditors Take?
When you file a Chapter 7 or 13 bankruptcy, all of your belongings become property of the bankruptcy estate until your bankruptcy case is closed by the court. Your property may be protected by an exemption, meaning you will get to keep it after the bankruptcy. But during the time the bankruptcy is pending, you cannot sell or give away those items without the court's permission. The trustee's job is to examine your property and determine whether you own things that are not protected by bankruptcy exemptions. If you do, the trustee may sell the property and distribute the proceeds fairly among your creditors. (Learn about bankruptcy exemptions and find the exemption amounts in your state.)
Individual creditors are not permitted to garnish or seize assets that are part of your bankruptcy estate, because it would be unfair to the rest of your creditors. This is true, even if the automatic stay is not in effect.
Creditors Can Go After Property Not in the Bankruptcy Estate
However, bankruptcy exemptions do not protect property that is not part of your bankruptcy estate. (Learn about property that is not in your bankruptcy estate.) For example, wages you earn after the date of filing are not part of your bankruptcy estate, and your creditors can garnish them if the automatic stay is not in effect.
Additionally, if you incur debt after filing, your new creditors are not subject to the automatic stay, and they can call, bill, or file a lawsuit against you to attach property or garnish your wages.
Example. You file a bankruptcy on March 1, and you own a 2006 Honda Civic, which is protected by your state’s motor vehicle exemption. Even if the automatic stay is not in effect, your creditors cannot take your car because it is part of your bankruptcy estate and is protected by the motor vehicle exemption.
Example. A creditor who holds a judgment against you can garnish wages that you earn after your bankruptcy is filed, because they are not part of your bankruptcy estate, but only to the extent that they are not protected by an exemption.