Like most areas of law, people do not want to file a bankruptcy proceeding, people file bankruptcy because they have to. There are several different types of Bankruptcy filings. The most common type of bankruptcy is consumer bankruptcy. Consumer Bankruptcies are filed on behalf of an individual or a married couple under Chapter 7 and Chapter 13 of the US Bankruptcy Code. In consumer bankruptcy, like corporate bankruptcy there are several areas that give the bankruptcy filer or petitioner a great advantage over their creditors.
1. Emergency Bankruptcy Filing
An emergency bankruptcy filing usually takes under two hours to complete and results in a filing where a bankruptcy case number is assigned. To receive a case number from our local United States District Bankruptcy Courts the filer needs to complete a credit counseling course and file a signed Voluntary Petition, Statement of Social Security Number and Creditor Matrix. This emergency filing is very short and requires a very small percentage of the information that will be required in two weeks for the filing of a complete Bankruptcy Petition with the Court. The emergency Petition is usually less than 10 pages long, whereas a complete and full petition can easily exceed 75 pages depending on the circumstances. The benefit of an emergency filing is that it is quick and it imputes the automatic stay in Bankruptcy.
2. The Automatic Stay
The automatic Stay is not just the most powerful tool in bankruptcy, it is the most powerful tool in all of law! The automatic stay is imputed once a Bankruptcy is filed. By virtue of the automatic stay any lawsuits or collection activities against the bankruptcy filer(s) or their property (home, car) must seize immediately. It is important to file the bankruptcy as early as possible if a lawsuit is already filed to avoid judgments.
3. Lien Avoidance
There are generally two different types of liens, judicial (judgments by default or Court Order) and consent liens (agreed upon liens). Consent liens are liens that exist because they were agreed upon by the parties, such as a mortgage lien or a judgment by agreement in court. In Chapter 13, second or third mortgage liens that are deemed unsecured based on house value can be discharged/voided through adversary proceeding. Consent and Judicial liens can be discharged/voided in Chapter 13 Bankruptcy as well. More common are judicial liens which are voided by way of Motion in Chapter 7 Bankruptcy.
4. The Co-Debtor Stay
If a bankruptcy filer has a co-signed mortgage or other debt with a friend or family member and that mortgage or debt will be repaid in Bankruptcy, the lender/creditor is prohibited from collecting against the co-debtor during the Bankruptcy proceeding. For example, if a parent co-signs a mortgage for a child, the child falls behind on the mortgage, the mortgage in due course falls into foreclosure proceeding and the child decides to keep the house and files Bankruptcy to do so; during the course of the bankruptcy and thereafter, the mortgage company is barred from collecting against the co-signor/parent. This offers protection to co-signors from creditors even though they are not the actual bankruptcy filer.