Bedford Park Bankruptcy Lawyer Illustrates The Power Of The Automati...

When a debtor files his first chapter 7 or chapter 13 case, by operation of law something called the automatic stay is imposed that protects the debtor from creditors’ attempts to collect their debts.  The stay is a court order that not only stops creditors’ attempts to collect their debts but also undoes any actions they take, whether intentionally or unintentionally, after the filing of the case.

Most creditors understand the automatic stay.  Once they are informed of the filing of a bankruptcy and confirm that fact, they will cease and desist all collection efforts.  The reason they do this is that bankruptcy courts fiercely protect debtors once their cases are filed and will levy sanctions against creditors for even minimal contact once they are convinced that either the creditors knew better or should have known better than to continue their collection efforts.  Innocent mistakes, such as happen when a creditor doesn’t receive notice because the address the debtor gave to the court to provide notice to the creditor of the filing, will not be punished. 

Creditors are not without their rights, however.   At various times in either a chapter 7 or a chapter 13 case, a creditor may approach the court and ask for relief from the automatic stay (also known as modifying the automatic stay).  The court will inquire as to whether the creditor is adequately protected or whether the court should retain jurisdiction over another court.  If it decides in the negative in either case, it will grant relief from the automatic stay to allow the creditor to pursue its remedies in another court, typically state court.  Should the court answer either question in the affirmative, it will deny the creditor’s motion and the protection of the automatic stay will remain.

There is good reason for creditors to act cautiously in the face of the automatic stay.  The Bankruptcy Code provides for sanctions, with both compensatory and punitive damages assessable, and attorneys’ fees against creditors for willful violation of the automatic stay.  The stay ends when the bankruptcy case is either dismissed or discharged.