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Saved By the Bell: The Emergency Bankruptcy Petition

September 13, 2010

The Bankruptcy Code provides real relief for individuals who have run out of financial options and can protect the debtor from creditor collection action even at the last minute.  By filing an emergency bankruptcy petition a debtor can stop a foreclosure or other legal action dead in its tracks.


When a debtor files a bankruptcy case all creditor collection action must cease immediately and automatically.  The bankruptcy automatic stay stops foreclosures, repossessions, garnishments, the commencement or continuation of nearly all lawsuits, and other creditor collection action dead in its tracks.  Because the effect of the automatic stay takes place immediately upon filing of the bankruptcy petition, it is not uncommon for a debtor to seek bankruptcy protection on the eve of a foreclosure, repossession, or other legal action.  A bankruptcy filing mere minutes before a foreclosure sale or lawsuit will stop the action or void the sale or judgment.


Waiting until the eleventh hour to seek out a bankruptcy attorney can be dangerous for the bankruptcy debtor.  First, the Bankruptcy Code mandates that to be eligible to file a personal bankruptcy the debtor must first complete a session with an approved credit counseling agency.  It is challenging to have an initial meeting with a bankruptcy attorney and complete this counseling on the same day you file bankruptcy.  The bankruptcy courts waive this requirement only under the most extreme emergency situations when credit counseling was not available to the debtor.  While it may seem that your case is an emergency situation, chances are that a waiver request will be denied. 


Second, your bankruptcy attorney must explore your finances with you and will require information that you may not be able to provide at the initial meeting. Your attorney needs information in order to protect your assets with legal exemptions and identify potential problems with property transfers.  Certain financial dealings may unknowingly thrust friends, family members, or business partners into your bankruptcy case.


Filing an emergency bankruptcy petition can stop creditors in their tracks, but it can also present potential problems for the debtor.  If you are considering a bankruptcy filing to protect your property, consult with an experienced attorney as early in the process as possible.  Your bankruptcy attorney can explain how the federal bankruptcy laws can help your family and identify any areas of concern. 


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