What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing- Part 2

31 May What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing- Part 2

As I previously discussed, there are several duties imposed on creditors when they have been notified that a bankruptcy case has been filed, especially if they have taken any collection actions after the filing. More of these duties include:

4. Duty to stop income execution and return funds. A creditor has an affirmative duty to take action to immediately stop an income execution and to be sure that any post-petition funds are returned to the debtor, says a Pennsylvania bankruptcy court as well as the 9th Circuit. An Ohio bankruptcy court held that the attorney for the garnishing creditor must take action upon filing. “It is not the debtor’s obligation”. A Georgia court found that the creditor’s attorney “is the one who caused the garnishment proceeding to be filed, and he is the one who must see that it is dismissed. As an officer of the Court, he is duty bound to see that the law is enforced.” And an Arkansas bankruptcy court held that “It makes no difference whether the garnishment was filed prior or subsequent to the filing of the Chapter 13 petition. At whatever stage the garnishment is, the creditor’s attorney must do everything he can to halt the proceeding.”

5. Duty to stop scheduled sales. The general rule is that if there is a sale of real or personal property scheduled for after a bankruptcy petition is filed, the creditor must stop the sale. An Ohio bankruptcy court joined with many other courts in holding: “Based on the language of 362(a)(1) many courts have emphasized the obligation incumbent upon creditors to take the necessary steps to halt or reverse any pending State Court actions or other collection efforts commenced prior to the filing of a bankruptcy petition, including garnishment of wages, repossession of an automobile, foreclosure of a mortgage or a judgment lien and thereby, maintain, or restore the status quo as it existed at the time of the filing of the bankruptcy petition.”

6. Duty to contact the sheriff or marshall. It is the creditor attorney’s responsibility to contact the sheriff to stop any collection action. It is not the debtor’s or debtors attorney’s duty. A North Carolina bankruptcy court ruled that a creditor’s attorney, after learning of a bankruptcy filing, cannot assume that the sheriff will be notified by the court or the debtor. Whether or not the debtor requests it, he or she must immediately take action by notifying the sheriff. An Ohio bankruptcy court held: “The provisions of the automatic stay place the responsibility to discontinue any pending collection proceedings squarely on the shoulders of the creditor who initiated the action… The creditor is in the driver’s seat and very much controls what is done thereafter if it chooses.”

Next: What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing- Part 3

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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