What is an emergency bankruptcy and under what circumstances should an individual consider an emergency bankruptcy?
An emergency bankruptcy is the filing of bankruptcy (Chapter 7, 11, or 13) on an emergency basis. Filing a bankruptcy means that after presentation of a bankruptcy petition by an individual, a bankruptcy clerk in the applicable bankruptcy division processes the bankruptcy petition and other papers. The process includes opening a new case for the individual, assigning a case number, and most importantly date/time stamping the petition, among other things.
Emergency means that the a debtor is motivated to file bankruptcy without delay. It also means that the debtor need not present the entire bankruptcy paperwork for filing with the court clerk. A debtor may present what is called a “skeletal” petition, which entails only part of the paperwork involved. The remainder of the paperwork, however, is required to be filed later.
Once a bankruptcy is filed, the “automatic stay” arises. The automatic stay is an order of court which generally states that a creditor must cease any action against the debtor or collection against the debtor’s assets. The automatic stay is spelled out in Section 362 of the Bankruptcy Code.
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For example, a creditor may have initiated a wage garnishment against the debtor’s wages in order to collect its debt. The debtor knows that in a week he or she will receive his or her paycheck but the garnishment will result in 25% of his or her wages being taken and given to the Sheriff’s office in the county where the debtor was sued. If the debtor files for bankruptcy on an emergency basis, the automatic stay of bankruptcy will stop the garnishment from occurring against the debtor’s wages, saving the debtor 25% of his or her wages.
Another example is a creditor, such as a credit card company, who is thinking about suing an individual to collect the amount owed. If the debtor files for bankruptcy right away, a creditor will not be able to file or serve that lawsuit against the debtor. Again, this is due to the automatic stay. Note that in the case of a lawsuit, the automatic stay prevents an action or the maintenance of an action against the debtor, although the debtor’s property has not become involved as yet.