If you repeatedly file for bankruptcy over a year's time, an exception to the automatic stay will apply, leaving you vulnerable to collection activities. This article explains the rules regarding bankruptcy's automatic stay and repeat bankruptcy filings. You'll also learn about legal and administrative actions a bankruptcy filing will never stop.
You'll need to file for bankruptcy to receive the automatic stay's protection. It's one of the primary bankruptcy benefits. The automatic stay prevents creditors from collecting debts from you during a bankruptcy case.
The bankruptcy court puts the automatic stay in place immediately after you file your bankruptcy case. Once activated, creditors can't contact you, bill or sue you, or undertake other collection activities, like repossessing property or garnishing wages. However, if you file for bankruptcy too often, you won't receive the automatic stay's protection.
Learn how the automatic stay can help you stop foreclosure and keep a house in bankruptcy.
The rules prevent filers from repeatedly dismissing bankruptcy cases and exploiting the automatic stay's ability to stop foreclosure, repossession, lawsuits, and other collection actions. Repeat filers often have no intention of using bankruptcy to fix financial problems—many can't qualify for Chapter 13 (we explain why bad-faith filers frequently use Chapter 13 below).
The bankruptcy court views bankruptcy manipulation as a bad faith abuse of the bankruptcy process. The resulting delays unfairly harm creditors with valid payment and property claims.
Automatic stay protection could be limited or unavailable if you file more than once in 365 days. Here are the rules.
If you file a second bankruptcy within one year of dismissing the first, the presumption is you filed the second case in bad faith. The automatic stay will expire after only 30 days. (11 U.S.C. § 362(c)(3)).
If you file three bankruptcies within the same year, the presumption of bad faith exists. The automatic stay will not take effect. (11 U.S.C. § 362(c)(4)).
Suppose you file a joint bankruptcy with your spouse within the same year of filing an individual bankruptcy the court dismissed—what will happen then?
The automatic stay restrictions will apply to you only. While your automatic stay might be restricted, your spouse will be entitled to automatic stay protection. However, the automatic stay won't apply if your spouse filed multiple cases within the same year.
Bad faith filings occur with much greater frequency in Chapter 13 cases. Unlike Chapter 7 filers, Chapter 13 filers can dismiss a bankruptcy case without approval from the bankruptcy court.
In Chapter 7, the bankruptcy court reviews a filer's dismissal request and will deny it if it appears to be a bad-faith filing. The Chapter 7 filer's case will move forward with the Chapter 7 trustee selling assets the filer can't protect.
Unlike Chapter 7 filers, Chapter 13 filers can dismiss matters without court approval. Chapter 13 filers risk virtually nothing by filing in bad faith because Chapter 13 trustees don't sell property.
Yes. You can file a motion asking the court to instate the automatic stay. To prevail, you must present clear and convincing evidence of good-faith bankruptcy filings.
Suppose the bankruptcy court dismissed your previous bankruptcy because you didn't timely file required bankruptcy documents. You demonstrate that you didn't purposefully fail to file the documents to force a dismissal. The court will probably extend the automatic stay if there's no evidence of bad faith. You'll also have a good argument if you show the dismissal was due to your attorney's error, not your own.
Ultimately, the court doesn't want to reward repeat filings that hold a particular creditor at bay. For instance, you won't prevail if you repeatedly filed to stop a mortgage lender from foreclosing on your property. Special rules apply when you dismiss a bankruptcy case after the court grants a mortgage lender's motion to lift the automatic stay.
Before filing multiple bankruptcies, you'll want to talk to a bankruptcy lawyer who can explain the court's likelihood of reinstating the automatic stay.
Creditors aren't permitted to garnish or seize assets that are part of the bankruptcy estate. Doing so would be unfair to the rest of your creditors—even if the automatic stay isn't in effect.
So what's in the bankruptcy estate? Everything you own when you file for bankruptcy. Your creditors are limited to taking things that aren't in the bankruptcy estate.
Example. Suppose you own a 2006 Honda Civic protected by your state's motor vehicle exemption when you file for bankruptcy. Your creditors can't take your car even if the automatic stay is not in effect. It's part of your bankruptcy estate and protected by the motor vehicle exemption.
Wages earned after filing and property purchased with postfiling earnings aren't part of the bankruptcy estate. Your creditors are free to garnish your postfiling wages or take property you buy with postfiling income.
Additionally, if you incur debt after filing, your new creditors aren't subject to the automatic stay. They can call, bill, or file a lawsuit against you to attach property or garnish your wages.
Example. A creditor with a judgment against you can continue to garnish wages you earn after your bankruptcy filing if the automatic stay is in effect. Postfiling wages aren't part of your bankruptcy estate.
Bankruptcy's automatic stay applies to financial matters involved in your bankruptcy. The automatic stay won't affect many other legal issues in which you could be involved.
Criminal matters and administrative licensing cases. A bankruptcy filing won't affect criminal cases or the collection of fines, restitution, and other debts ordered in criminal court. Administrative actions taken against a state-issued license will proceed—driver's, professional, fishing, or another license type—and you'll remain responsible for related fines.
Tax determinations. The IRS can proceed with tax audits and assessments during the bankruptcy case.
Family law matters. The automatic stay won't stop scheduled court dates for divorce proceedings, custody determinations, and support awards.
Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.
Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.
More Bankruptcy Information
Bankruptcy Forms and Document Checklist
You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.
Chapters 7 and 13 Bankruptcy Form List
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.