In this excerpt from Legal Action, Attorney David M. Siegel talks about the creation of the automatic stay in bankruptcy. Some debts are eliminated whereas others are not. It all depends upon the type of debt and the type of bankruptcy.
Interviewer: What happens if I’ve got a garnishment or a threat of garnishment or maybe a creditor is suing me and I have to go to court in two weeks for the small claims case or whatever for the credit card. What is filing a Chapter 7 going to do for me initially?
David Siegel: Chapter 7, once a case is filed, there’s something called an automatic stay which is created. It basically states that the case is filed, there’s a case number, there’s a data filing, and the creditors typically – most creditors are prohibited from taking any kind of collection action against you.
Interviewer: What if there’s already one pending?
David Siegel: Again, depending on the type of case, but a typical credit card or other debt collector situation that lawsuit must stop immediately in its tracks. However, if there’s some kind of contempt hearing I always advise my clients to show up at court, advise the court that you’ve filed a bankruptcy, and typically there’ll be no contempt charges against you.
Interviewer: If it’s based upon the repayment of whatever debt that we’re talking about there.
David Siegel: Right. The difference between owing money and having to appear in court for failure to show up in court are two different things. So the bankruptcy will stop the debt, but if there is a contempt hearing I want the client to show up and advise the court that a bankruptcy case has been filed; so there’s no intentional disregard for the law in missing so many prior court dates.
Interviewer: What other kinds of debts other than the student loan and things that you talked about survive a Chapter 7?
David Siegel: In a Chapter 7 any kind of parking ticket is going to survive, a recent tax debt, child support.
Interviewer: Recent tax debt; what do you mean by – so are you saying that there’s a possibility of getting some old taxes discharged?
David Siegel: Right. Taxes are a tricky area under the bankruptcy laws. But basically in a nutshell if a tax is more than there years old, if you filed a return on time or within the last two years, and if the tax was assessed more than $240 days ago it may be eliminated in a Chapter 7 bankruptcy. So typically an old tax that’s more than three years ago we have a good chance that debt will be eliminated. One caveat though, the return must be filed by the debtor, not by the government. The government actually does file returns on behalf of individuals. If that happens that tax debt can never be eliminated because the tax return was filed by the government.
Interviewer: What if I go back and file a return from a few years ago?
David Siegel: You can do that, but then you must wait an additional two years from the time you filed that return before it can be eligible for discharge. So the timing is critical with Chapter 7 bankruptcy on a number of different issues; the use of credit cards and the filing of tax returns. There are a lot of time areas that you want to make sure that you don’t pull the trigger on a filing prematurely. You want to time it properly, and that’s not fraudulent, that’s zealous representation, that’s being smart. That’s taking full advantage of the federal laws that are there for you. If waiting an extra week or two means the difference between dischargeability and non-dischargeability by all means your attorney better wait. Otherwise you have an issue with your attorney there.
