If you have made the tough decision to declare chapter 7 bankruptcy, you may have heard about the magical powers of the automatic stay. This legal stop sign that comes to life with a federal filing is unbelievably powerful, but in some cases its powers are somewhat limited. Knowing what to expect from chapter 7 filing is important, so read on to learn more about the issues that may not come under the spell of the automatic stay.
Uncle Sam Expects to be Paid
If you owe back taxes (or upcoming taxes) to the IRS, you may be out of luck if you expect a bankruptcy filling and the automatic stay to help you. All taxes owed by the filer, including interest and penalties, will remain the responsibility of the debtor, regardless of filing status. If have already set up an agreement with the IRS to make payments on your debt, that installment plan must be honored during and after your bankruptcy process. While the IRS doesn't use collection agencies to solicit payment, they do have the power to clamp a hold on your property and wages if you fail to make due payments.
- Liens: A lien can be considered a "freeze" on your property that can only be lifted by paying the amount you owe in full. For example, if the IRS places a lien on your boat, you cannot sell the boat while the lien is place. A bankruptcy filing can prevent the IRS from placing additional liens on your property, however.
- Garnishment: If some of your salary has been funneled toward your tax bill, that garnishment will remain in place until the debt is repaid in full.
Protecting the Innocent
The courts place a huge emphasis on protecting the most vulnerable in divorce cases, so if you have a child support obligation and are behind on it, you cannot use a bankruptcy filing to get out of that obligation. Furthermore, if the child support enforcement agency has placed a garnishment upon your wages for back child support, that garnishment will be unaffected by your chapter 7 filing.
Temporary Help Only
There are several issues to which an automatic stay may only lend temporary reprieves. If you have fallen behind your mortgage or utility bills, you are only given a temporary reprieve. Once the time period passes, your mortgage company can once again proceed with a foreclosure and you may once experience the threat of utility shut offs.
Talk to a bankruptcy attorney for more detailed information about what can and cannot be addressed with the power of a bankruptcy filling.