If you’ve had more than 1 case filed and dismissed within the last year, you’ll need to show “good faith” to get automatic stay protection.
The Effect of ONE Prior Dismissed Bankruptcy Case
Our last blog post was about losing the automatic stay protection from debt collection, 30 days after filing bankruptcy. This loss of protection could happen as to ALL of your creditors, not just one particular one. It could happen if you had filed a bankruptcy case within 1 year before the filing of your present case, and that prior case got dismissed (thrown out and closed).
You could prevent losing this protection from debt collection by showing the new case is being filed “in good faith.” There are specific considerations laid out in the law for demonstrating “good faith.” See Section 362(c)(3) of the U.S. Bankruptcy Code.
The Effect of TWO or More Prior Dismissed Bankruptcy Case
If within the prior year you had more than one prior bankruptcy case filed and dismissed, the consequences are worse. At the filing of your current case there would be NO automatic stay protection from the beginning. You’d have no protection for even the first 30 days, as there’d be with just ONE prior case.
The law states that, with 2 prior dismissed cases within a year, the automatic “stay shall not go into effect upon the filing of the later case.” See Section 362(c)(4)(A)(i) of the Bankruptcy Code.
What’s the Purpose of These Rules?
About a dozen years ago Congress added the above provisions to Bankruptcy Code. At the time there was a perception that some people were abusing bankruptcy by filing multiple cases one after another. Some people would file a case to get automatic stay protection (such as to stop a home foreclosure), do nothing with the case until the court dismissed it, and then file a new bankruptcy case as soon as the creditor took some new action (such as scheduling a new foreclosure sale). Congress responded by taking away automatic stay protection in the circumstances outlined above.
How to Get the Automatic Stay into Effect?
So what do you do if somehow you’ve had two prior, dismissed bankruptcy cases within a year, and now really need to file a case again?
First, you could wait until a full year has passed after your most recent dismissed case. That would avoid this problem.
Second, you could at least wait until you had only one prior dismissed case filed within the prior year. Then the automatic stay protection would kick in right away with the new bankruptcy filing. You’d still have to demonstrate “good faith” filing of the new case to avoid losing the stay 30 days later. But at least you’d get the immediate protection.
Third, if you couldn’t wait you could file the new bankruptcy case. And at the same time you and your bankruptcy lawyer would also file a motion asking the court to “order the [automatic] stay to take effect.” Section 362(c)(4)(B). This motion has to be filed within 30 days of the bankruptcy filing. You’d want to file it without any delay to get the automatic stay imposed as soon as possible. Again, you’d have to demonstrate that the new bankruptcy filing was done “in good faith.”
How to Demonstrate “Good Faith”
What does a “good faith” filing of the new case mean?
The Bankruptcy Code lays out the requirements of demonstrating “good faith in some detail. It’s beyond the scope of the blog post to go through it all. Generally you need to show that you aren’t abusing the bankruptcy laws through your prior and present bankruptcy filings. This gets into the reason why the prior case(s) got dismissed, whether changes in personal and financial circumstances will make the present case successful when the prior one(s) wasn’t (weren’t), and whether any creditor previously asked for relief from the automatic stay and where that now stands.
Start off your first meeting with your bankruptcy lawyer by telling him or her about your prior bankruptcy filing(s). You’ll be informed about your options. Specifically, you’ll learn whether it makes more sense for you to wait to file your new case, or instead to go ahead and file the new case and the motion demonstrating “good faith.”