What is an Automatic Stay in Bankruptcy?
Immediately upon your filing for a petition for Chapter 7 or Chapter 13 relief, you will receive the significant protections provided by the “Automatic Stay.” The effect of the Automatic Stay is awesome and dramatic, and its purpose is to protect you and your property. In general, the automatic stay:
1. Requires creditors to stop any collection efforts
2. Protects your property by prohibiting:
(i) the enforcement of judgments against you or your property
(ii) acts to obtain possession or control of your property which is considered to be Property of the Estate
(iii) acts to enforce any lien which may exist against Property of the Estate
(iv) any other acts to collect, assess or recover a pre-petition claim against you
3. Abruptly halts most civil legal matters, including proceedings for garnishments, evictions, and attachments
Exceptions to Automatic Stay in Bankruptcy
Although the Automatic Stay is very broad, there are some types of collection efforts (and other matters) which will not be halted by the Automatic Stay, including:
1. The ability of a former spouse to collect alimony, maintenance, or support from the wages you earn after the filing of your Chapter 7 case
2. A government unit beginning or continuing an action against you to enforce its police or regulatory power.
Notice to Creditors of the Automatic Stay
Creditors receive written notice of the Automatic Stay from the Clerk of the Bankruptcy Court by mail approximately several weeks after the filing of the petition. If you have reason to believe that action may be taken by a particular creditor before notice of the stay is provided by the Clerk of the Bankruptcy Court (such as an expected repossession of your car), your Attorney can provide to that particular creditor earlier written notice of the filing of the petition and the existence of the Automatic Stay. Doing so will eliminate the risk of collection by a creditor due only to its lack of notice of the Automatic Stay.
Violations of the Automatic Stay by Creditors or Others
In instances where the Automatic Stay is violated by a creditor or other party, the Bankruptcy Court is provided with broad and significant power to undo certain violations.
Example:
Mike files a Chapter 13 case. Five days later, BIG BANK repossesses his vehicle in violation of the Automatic Stay. The Bankruptcy Court can order BIG BANK to return Mike’s vehicle immediately, if BIG BANK does not return the vehicle voluntarily upon the request of Mike’s Attorney.
If the creditor knew of the bankruptcy filing and its associated Automatic Stay violation, the creditor can face substantial fines from the Bankruptcy Court.
Example:
In an actual and unusual case, I represented clients who had filed for Chapter 13 relief. Apparently by mistake, a creditor having a lien on my clients’ vehicle sent men to my clients’ home to repossess their vehicle on which the creditor had a lien. My clients informed these men that their car was protected by their Chapter 13 case and even showed them a copy of their Chapter 13 petition. The men insisted on taking the car and did so. With my assistance, the matter was brought before the Bankruptcy Court seeking money damages for a willful violation of the Automatic Stay by the creditor. The case was settled by the creditor paying $5,000.00, and a hearing before the Bankruptcy Court was unnecessary.
Creditor Action to Remove Automatic Stay
Although the Bankruptcy Code provides many significant rights to individuals filing for relief, one must remember that creditors are also provided with some rights. With respect to the Automatic Stay, a creditor who believes that it is unfair for it to be subject to the Automatic Stay may seek permission from the Bankruptcy Court to terminate, annul, modify, or condition the Automatic Stay so that the creditor can take the action necessary to protect its interest (such a request before the Court is sometimes called a motion to “lift the Automatic Stay” or “lift stay motion”). Such motions by creditors are not unusual and arise under various circumstances.
See how John D’Amato can help you. Your consultation is free and confidential. Call 716-706-0000 today.