Creditors have to stop collection attempts when you file bankruptcy. Find out how automatic stay protects you and when creditors pay for violations.

Automatic stay violation: Know the rights to protect yourself

Automatic stay is one of the noticeable benefits that bankruptcy filing can offer to a consumer. It's significant, since it not only offers immediate protection to a debtor filing bankruptcy but also saves his assets from his creditors and debt collectors.

What is meant by automatic stay?

Automatic stay offers a wide range of protection to a debtor and initiates immediately after a bankruptcy case is filed. It prohibits nearly all forms of collection attempts by creditors and/or debt collectors from then on. Thus, once the stay is in effect, any creditors to whom you owe money before the bankruptcy filing is prevented from making further collection efforts. Thus, it provides relief to the debtor and gives him additional time for his debt discharge or repayment.

How it helps the creditors as well?

In a Chapter 7 bankruptcy, the stay allows the bankruptcy trustee to figure out which properties of the debtor's estate can be used to pay off his creditors (as much as possible). Whereas, in Chapter 11 or Chapter 13, it allows the debtor to plan his finances, reorganize his debts and formulate a payment plan for his creditors. Thus, it ensures balanced repayment strategy for the creditors, so that rival creditors can have fair share of the consumer's limited amount of money or assets.

Which forms of collection acts stop with automatic stay?

Automatic stay can put a halt to almost all forms of collection attempts, including wage garnishments, collection calls and mails, repossession of property or assets, foreclosures and related legal processes or lawsuits.

Section 362 of the federal Bankruptcy Code mentions which activities should be stopped immediately after a successful filing of the bankruptcy petition as mentioned below:

  1. Initiation, issue, application or continuation of any judicial, administrative or other action and recovery attempts that had started before the filing.
  2. Issue or enforcement of a judgement, against the debtor or any property of his estate, which was issued before the filing of the case.
  3. Attempts to establish possession or control over the debtor's estate and the included property.
  4. Attempts to create, perfect or enforce lien against property of his estate.
  5. Efforts to create, enforce or implement a lien against the debtor's property, to secure a claim made before the bankruptcy filing.
  6. Actions to collect, assess or recover claims arising from before the filing.
  7. Setoff of any debt owing to the debtor before the case filing against any claim against him.
  8. Initiation or continuation of US Tax Court proceedings involving the debtor.

What are the violations to automatic stay?

If creditors or collection agencies try to collect dues or impose judgements, before the bankruptcy court lifts the order of protection, they can be held in violation of the federal laws. Thus, any attempt to extract pre-bankruptcy debts by trying to repossess property or through lawsuits will be considered as automatic stay violation.

Are there any exceptions to automatic stay in bankruptcy?

Some exceptions still apply to the automatic stay process since it:

  1. Can't stop ongoing criminal cases
  2. May not help to prevent child support actions in certain cases
  3. May not prevent eviction process in specific scenarios
  4. Doesn't apply to tax liens in particular situations

Moreover, creditors may seek permission from the bankruptcy court by filing a motion to lift the automatic stay. If the court allows them, they can continue with the collection process or repossess debtor's property, even if he has filed bankruptcy. Such cases won't be considered as violation of automatic stay in bankruptcy.

What can be the consequences to automatic stay violations?

The following can be the consequences of automatic stay violations:

  1. Any action taken by the creditor which violates the automatic stay is considered void.
  2. Creditor violations can be addresses through injunctions.
  3. The court may revert the action taken by the creditor or collection agency, e.g. return the property to the debtor.
  4. Creditors may face charges for contempt of court order. The court may ask them to pay for damages and sanctions.
  5. Consumers may even seek compensation from the creditor for actual and punitive damages, damages for loss of use of property, loss of wages, attorney fees and costs of lawsuits etc.

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