Bankruptcy Automatic Stay: Protection from Creditors

One of the benefits of filing for bankruptcy is the automatic stay. Creditors can no longer contact a debtor to obtain monies owed for past due accounts. It's the start towards having a large burden lifted off a debtor's shoulders and being given the opportunity to start their life over.

How the Automatic Stay Works

The automatic stay is a part of bankruptcy law that creditors must adhere to or pay a price. It comes into effect the moment that the petition and filing fee are accepted by the clerk. Now a debtor can give a creditor the case number and state that there be no more contact until the outcome of the bankruptcy is determined.

Nothing stops the creditor from looking up the case on the PACER system to verify the information. Either they can take the word of the debtor or they can investigate independently. In any case, the court will send out mail to the address listed in the schedules to inform of a debtor's filing. It's entirely possible that a creditor will still call a couple of times until the official notice. All further contact is barred upon receiving the letter.

When a Creditor Ignores the Automatic Stay

A creditor takes a risk by ignoring the stay and continuing to contact the debtor. This is considered to be a willful action and can be actionable in court. A debtor can sue for damages incurred. Amounts vary but do not have a limit. How to set an amount is dependent on how the lawyer proceeds with a lawsuit.

In the situation where actual property is involved, such as a vehicle, and the creditor repossess it, other creditors can sue as well. The possibility exists that the trustee may have sold the vehicle for money to pay the creditors. No one creditor can claim preference over another in this situation. A trustee will distribute the funds evenly. So the action of one creditor to obtain property harms the others.

A creditor may break the stay in a more simple manner, such as constant phone calls. Damages can be asked for, but it depends on how the court feels about awarding for emotional damages. It may be that only your attorney's fees will be paid and no extra money beyond that.

Legal Advice

It's important to consult with an attorney when a creditor violates the automatic stay. At the very least they can send out a cease and desist letter to get the creditor to stop. If you don't have a lawyer, it's a good idea to hire one to have someone at hand who can help you protect your rights.