What Should I Do If A Creditor Violates the Bankruptcy Automatic Stay ?

What should I do if a creditor violates the automatic stay?

Immediately upon the filing of a Bankruptcy petition, a petitioner is granted the protection of an automatic stay. This means that creditors must cease all collection activity, including repossession, garnishment, law suits, phone calls, letters, or any other attempts to collect on the debt. If they fail to do so, they are in violation of the stay.

If a creditor attempts to collect a debt after the filing of a Bankruptcy petition, the Petitioner should let the creditor know that a claim has been filed. It may have been an honest error and the creditor may stop attempts to collect and correct any actions taken after being told that a bankruptcy was filed. Even though creditors receive notice of the stay when a Bankruptcy Petition is filed, the court will often forgive a violation due to a clerical error if the creditor immediately ceases all collection activity and corrects the mistake.

If collection efforts continue, a petitioner may request relief from the Bankruptcy Court. If the Court finds that the collection action was willful, it will sanction the creditor for violating the stay. The violation will be considered willful if: (1) the stay was actually in effect and was actually violated, (2) the creditor knew of the case and failed to correct its actions immediately after learning of the Bankruptcy case, and (3) the collector meant to act. For example, if a creditor repossesses a consumer’s car after a Bankruptcy Petition has been filed, and that creditor does not immediately return the car, upon learning of the mistake, the Court would return the car to the Petitioner, and the creditor can be held in contempt of court and made to pay fines, attorney’s fees, and damages to the petitioner.

A violation of the automatic stay may also be violation of state and federal Fair Debt Collection Practices acts which heavily regulate the behavior of debt collectors. To pursue relief under one of these statutes, a consumer must file a separate law suit outside of the Bankruptcy proceeding. Nevertheless, it is an additional means provided to enforce the protections of the automatic stay.

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