Dear Bankruptcy Adviser,
I filed Chapter 13 bankruptcy recently. The creditor was named on the bankruptcy list of schedules. Yesterday, the creditor served a levy on all bank accounts. How is that possible?
For my readers who don't know what a "list of schedules" is, it's a compilation of all the filer's assets, income, debts and other information necessary for a competent review of a request for bankruptcy protection. When you file bankruptcy, all creditor activity should come to a halt. This is done by something called the "automatic stay," which means that all creditors listed in the bankruptcy are immediately prohibited from continuing with collection efforts, including phone calls and lawsuits. Whether you file a Chapter 7 or Chapter 13 bankruptcy, all creditors must cease all pre-filing activities in their attempt to collect on the debt you owe.
You filed the Chapter 13 bankruptcy for one of several possible reasons. For example, you make too much money to qualify for a Chapter 7 or you were trying to save an asset from being lost like a house or car. Chapter 13 is a repayment of none, some or all of your debt over a three- to five-year period. Most or all of your creditors are lumped together into one large pool. You then make payments each month to the person assigned to your case, called a trustee. The trustee distributes your payment to the creditors.
In your situation, it appears that you are the defendant in an active lawsuit at the time you filed your bankruptcy. That means a creditor had sued you, obtained a judgment against you and received the right to place a levy on your bank accounts. A levy is a legal process in which a creditor obtains the right to seize your property -- whether the property is land, a car or money in the bank.
You are correct to question how a creditor could levy your bank account when you are inside an active bankruptcy. The creditor legally cannot. However, what is legal and what is coincidental are two different things. Unless this creditor cavalierly disregards bankruptcy law, the creditor likely did not get notification of your bankruptcy filing. Many times, you are going up against a large bank or financial institution. The lawsuit filed against you is being handled either by attorneys inside that institution or an outside collection law firm.
While the original creditor may have notification, getting that information to the parties in control of the lawsuit might take some time.
When you filed your bankruptcy, you needed the name of the law firm or attorney handling the lawsuit and the court where the lawsuit was heard. This information is available on the document you received from the court. You also needed the name of the sheriff's department that served the bank levy.
All these parties needed to receive notification as soon as possible after your case was filed. Otherwise, it might take longer for them to find out that you had filed for bankruptcy.
The good news is that there should be a quick resolution to this issue. The attorney or law firm handling the case should know the creditor must release the levy once notified of the bankruptcy. However, unless you have an attorney, it is your job to confirm all parties are aware of your filing.
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