Bankruptcy is a debt-resolving process that can help with common unsecured debts, like credit card bills and medical expenses, several secured debts, including mortgages and car loans, and many other miscellaneous debts, like some tax debts. When you file for bankruptcy, you also get the benefits of the automatic stay, which forces your creditors to stop existing collection actions, including the halting of wage garnishments, evictions, foreclosures, and the assessment of late fees. The automatic stay can also prevent creditors from starting legal action against you for the collection of debts. If you’re considering filing a petition, Behm Law Group Ltd. can help you navigate the complexities of the bankruptcy code in Mankato, MN, and the surrounding areas.
If a creditor continues to pursue legal activities against you after you file a bankruptcy case, the creditor can be sued and the bankruptcy court can sanction it quite severely. While the automatic stay in the U.S. bankruptcy code is a very powerful tool for filers, there are limitations. There are some types of lawsuits and legal activities that the automatic stay will not stop.
For example, the following are some of the most common legal proceedings that are typically not stopped by the automatic stay:
The automatic stay will not stop criminal cases from moving forward. Assault, battery, larceny, and even driving on a suspended driver’s license are just some of the common criminal cases that the automatic stay will not stop.
Divorce proceedings and child support cases:
The filing of a bankruptcy case will not stop your spouse from filing a divorce proceeding. The filing of a bankruptcy case will also not stop a court proceeding to determine whether you owe child support or alimony. Divorce cases are handled in state family court, and they almost always involve issues concerning child support and/or alimony. Both child support and alimony debts are not discharged in bankruptcy. However, obligations concerning property division settlements could be addressed and discharged in a Chapter 13 bankruptcy.
Personal injury cases:
If you could receive money from filing a lawsuit for personal injuries caused in a vehicle accident, etc., the legal proceedings could continue even after a bankruptcy has been filed. However, the trustee administering the bankruptcy case will usually be very involved in such proceedings because there may be some money available from the settlement of such proceedings that the trustee could distribute for the benefit of creditors.
Cases where a motion to lift the automatic stay is granted:
In some cases where creditors could sustain significant losses or damages regarding their collateral, they may file motions with the bankruptcy court to lift the automatic stay. By filing such motions, the creditors will request permission from the bankruptcy court to collect, secure and store their collateral to prevent the collateral from being damaged. For example, presume your mortgage creditor has a validly perfected mortgage to your homestead. Presume further that it is wintertime, that you no longer live in the homestead and that the power has been shut off by the utility company. In such a case, the mortgage creditor could suffer additional financial losses because the water pipes in your homestead could burst and the house could be entirely flooded. Accordingly, the creditor would file a motion for relief from the automatic stay and would reinstitute foreclosure proceedings after the bankruptcy court granted its request. The mortgage creditor would then gain access to the homestead and would be able to secure it to prevent further financial losses.
In addition to these lawsuits, there are some other limitations of the automatic stay, including some tax determination proceedings and criminal sentencing processes.