When Creditors Violate The Automatic Stay – Oops, They Did It Again

07 Oct When Creditors Violate The Automatic Stay – Oops, They Did It Again

Debts discharged in bankruptcy can’t be collected upon and if they do, there may be legal action that you can take against them for violation of bankruptcy laws. With apologies to Ms. Spears, it seems as if creditors who violate the automatic stay in bankruptcy fall back on the now-familiar refrain that they made a mistake and promise to never do it again. As if that were all that mattered, some bankruptcy judges will use the rubber stamp and let it slide.

Why? Bad lawyering? A bad judge? Something else entirely? Well, it depends.

It’s important to remember that the automatic stay of bankruptcy is real, and it applies to everyone. But it does not apply unless you (or your lawyer) takes some specific steps to protect your interests.

Section 362 of the US Bankruptcy Code states that the filing of a petition in bankruptcy operates as a stay,

    applicable to all entities

, of the commencement or continuation, of any action against the debtor. Period.

There are some exceptions, but for the most part if you’ve got a pre-petition credit card, student loan, personal loan, mortgage, car or loan or consumer debt then you are “hands off” once the case hits the bankruptcy court house door.

Section 362(k) states that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

So what’s a willful violation of a stay? Well, the creditor needs to know – or have reason to know – that you have filed for bankruptcy. They need to take an action to collect against you after that stay is in effect. They don’t need to willfully violate the stay, they need to willfully take the action. That means the creditor needs to mean to send out the collection letter after that creditor knows of the stay.

Creditors, as I said at the beginning of this article, commonly walk into court and claim that they didn’t know about the stay and made a mistake. That’s why it’s important – critical, really – to always be sure that your creditors are properly notified of your bankruptcy case by listing them on the schedules. And above that, the prudent lawyer will always give an offending creditor a warning letter when a post-filing collection letter is sent. Give ’em enough rope and they’re sure to hang themselves, as the saying goes.

Related Posts Plugin for WordPress, Blogger...
The following two tabs change content below.
Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
No Comments

Sorry, the comment form is closed at this time.