One of the main reasons that people file bankruptcy is something called the “automatic stay.” The automatic stay is called that because that is what it is: (1) it goes into effect automatically upon the filing of a bankruptcy petition and (2) it operates as a “stay,” or stops, efforts to collect against a debtor. The automatic stay is quite different from most other areas of law. In most areas of law, if you want a stay or an injunction, you have to make a significant showing as to why the stay is necessary. Not in bankruptcy. In bankruptcy, you just file the case and the stay goes into effect.
So what happens if a creditor violates the automatic stay? Let’s say a creditor disregards the automatic stay and continues a lawsuit against a debtor after the bankruptcy is filed. What penalties are there? A willful disregard of the automatic stay can result in the creditor being liable for actual damages, attorneys fees, and in appropriate cases, punitive damages. So, creditors have good reason to be very cautious about violating the automatic stay.
Unfortunately, they are not always as cautious as they should be. When that happens, it is important to have an attorney that is willing to sue the creditor for violation of the automatic stay. It is also important to remember that automatic stay violations have to be proven by evidence. So, if you think a creditor is violating the automatic stay, you should start keeping track of each detail regarding that violation. This would include (1) writing down details regarding each phone contact, (2) keeping any written communication, including the envelope used to send the communication, and (3) documenting any damages that occur as a result of the violation.
