Previous posts here have discussed some of the basic differences between filing a bankruptcy under Chapter 7 of the bankruptcy code and filing under Chapter 13. To refresh, Chapter 7 filings are often referred to as “liquidations,” in which the debtor’s property that is not exempt under the law is sold to pay off as much of the debt as possible. Chapter 13, on the other hand, is considered a “reorganization” and the debtor must have an income with which to submit a plan to pay back some portion of the debt in a three- or five-year time span.

One part of both bankruptcy procedures that is similar in Kentucky, however, is the concept of the “automatic stay.” Once a bankruptcy petition is filed, all debt collection activity must stop until the bankruptcy cases goes through the court process. This means that phone calls, letters and other communications by the creditors or their agents should cease upon the filing of the bankruptcy. Further, if there is a foreclosure proceeding that has not been finalized, a Chapter 13 bankruptcy filing will cause that process to halt.

The automatic stay in a Chapter 13 case should not be overestimated. When a debtor makes an agreement to begin the payment plan on debts, it should be understood that the plan needs to be adhered to. If, for example, the debtor misses a house payment under the Chapter 13 repayment plan, it is possible for the creditor on the home to request from the court an exemption from the automatic stay in order to resume collection activities, including foreclosure.

Kentucky residents who are in dire financial straits due to debts caused by a period of unemployment, or unexpected expenses such as a sudden illness, may wish to think about bankruptcy.

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