High amounts of debt can weigh on a person every moment of the day. Chapter 7 bankruptcy is an option that debtors can access to find relief from debt that is beyond their means, and many rules govern how the process works, which is separate from the regular federal court system, how the debtor qualifies, and what creditors must do to collect outstanding claims. Because the bankruptcy system is intended to provide debt relief and a fresh start, one of the first and in many respects, most important limitations placed on creditors while the bankruptcy case proceeds is the automatic stay.

One of the more stressful repercussions of unpaid bills is the constant stream of letters and phone calls from creditors seeking payment, not to mention the possibility that property could be repossessed or seized. The automatic stay restricts most creditors from seeking to collect a debt once a bankruptcy petition is filed. The courts take violations of this provision seriously and will impose hefty damage awards if the violations are found to be willful and egregious. Without compliance with the automatic stay, one of the fundamental purposes of the bankruptcy system would be circumvented. A discussion of what exactly the automatic stay prohibits, which creditors must follow it, and the possible consequences for ignoring the order will follow below.

Automatic Stay Overview

The legal meaning of the word “stay” in this context is to stop or suspend, and as noted above, this order prohibits most creditors from pursuing collections efforts against an individual or his or her property. As the name indicates, these restrictions are in place as soon as the bankruptcy petition is filed without further action by the debtor and consideration by the bankruptcy court. The stay remains in place until the bankruptcy case is concluded, usually three to four months. Examples of collection efforts an automatic stay will halt include:

• Utility disconnections;
• Foreclosure;
• Eviction;
• Wage Garnishment; and
• Sending letters or making phones to debtors.

However, certain proceedings are unaffected by the automatic stay, and it is possible to request the bankruptcy court to lift it, which is one important reason an experienced bankruptcy attorney should be consulted prior to filing for bankruptcy.

Which Creditors Must Comply

As mentioned, certain debts are not subject to this stay, including certain tax obligations and spousal/child support. Creditors do have the option to ask a court to lift the stay, which is a distinct possibility for houses in foreclosure, landlord/tenant disputes, and pending lawsuits in other courts. Courts are likely to grant a request to remove the automatic stay if the homeowner defaulted on the mortgage payments, and there is not enough equity in the home to cover the amount of future payments. In addition, property that is valuable and quickly losing value, when the creditor is concerned the debtor will not surrender or otherwise reaffirm the debt, may also have a good chance at seeing the automatic stay lifted.

Consequences for Violations

Bankruptcy courts do not want to encourage creditors who ignore the stay or fail to follow the proper channels to have it lifted. One of the more potent options courts have to compel compliance is to order punitive damage awards, essentially a penalty for flouting the law, which serves to put other creditors on notice that such behavior will not be tolerated. Examples include repossessing a vehicle after the bankruptcy case is filed, continuing to contact a debtor after notice of bankruptcy was received, and proceeding with an eviction after notice of bankruptcy and making no effort to have the automatic stay lifted.

Get Help

Chapter 7 bankruptcy may be the answer to your financial situation, and working with an experienced bankruptcy attorney will give you the information you need to make an informed decision. Christopher L. Arrington, P.C. understands the stress and frustration you are facing, and can assess the effectiveness of bankruptcy on your specific situation. Contact the Danville law firm to schedule an appointment.