One of the most important important reasons people file for bankruptcy is the automatic stay. Think of the automatic as a federal court order that prohibits of any attempts by creditors to contact you or to collect a debt. It goes into effect the moment your bankruptcy petition is filed with the court, thus it is quite literally automatic.
The stay prohibits creditors from calling you, taking money from your paycheck, repossessing your car, foreclosing on your home, sweeping your bank accounts, filing lawsuits or taking any other action to collect a debt. The automatic stay gives you a little “breathing room” while the court processes your bankruptcy. Some creditors like a home lender might have the right to continue foreclosure on your home if you continue to miss payments, but the lender must file an appropriate motion with the court to get permission before proceeding with the foreclosure.
In most cases, the stay remains in effect until the court grants a discharge to the debtor. In some cases, the creditor can request that the judge lift the stay in order to repossess a car or complete a foreclosure on a house. Although a Chapter 7 bankruptcy may temporarily stop a foreclosure or repossession, the debtor will need to either negotiate with the secured creditor or let property go. In a Chapter 13 bankruptcy, the stay usually lasts during the life of the Chapter 13 plan.
Acts Not Prohibited by the Stay
The automatic stay does not stop criminal proceedings, actions to obtain or modify a domestic support order, tax audits or assessments of taxes after an audit.
Penalties for Violating the Stay
Anyone who willfully violates the stay can be held liable for the damages caused by the violation and sometimes even punitive damages.
The key to recovering damages is make to sure the creditors receive actual notice of the bankruptcy. The court usually takes about a week to mail notice of the bankruptcy to the creditors. The debtor’s attorney should take steps to promptly notify any creditors that might take action before receiving notice from the court. If a creditor completes a foreclosure sale or picks up a car for past due payments without knowledge of the bankruptcy, undoing the damage can take days or weeks.
You should report any violations of the stay to your attorney immediately. If you are in San Diego County and would like a free consultation regarding stay violations, please contact us at (619) 448-2129.
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