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Violation of the Automatic Stay

Bankruptcy's Power can Stop Aggressive Creditors

The automatic stay may sound like a complex legal concept, but in reality it provides a powerful tonic against the ills caused by aggressive creditors.

During the bankruptcy process, an automatic stay is designed to keep filers safe from creditors while the filer gets his or her finances in order.

Since bankruptcy is designed to be a safe haven for people in debt, bankruptcy courts take violations of the automatic stay very seriously. Attempts to collect debts that are in violation of the court's automatic stay are usually seen as void.

Creditor Violations of the Automatic Stay

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As a general rule, the automatic stay prevents most creditors from taking collection actions against the person filing for bankruptcy. Such prohibited actions may include car repossession, home foreclosure, or collection lawsuits.

When a violation of the automatic stay occurs, courts may take the following steps:

  • Void the action. If a creditor violates the automatic stay by, for example, attempting to foreclose on a home, the bankruptcy court may simply view that action as void.
  • Possible punishment. If the violation was accidental, punishment may not occur. However, if the creditor willfully violated the automatic stay, the bankruptcy filer may have a new cause of action against the creditor.
  • Private cause of action. If a filer is injured by a violation of the stay, he or she may be able to seek relief in the form of actual damages, court costs, or attorney's fees. Further, other creditors may be able to sue the offending creditor, as well.

Thus, violations of the automatic stay may result in serious headaches for offenders, as they may be sued by the filer as well as other participants in the bankruptcy case.

One exception comes into play when the government violates the stay. If a government agency violates the stay, filers may not usually file a lawsuit. Instead, they are only allowed to recover confiscated money or property.

More Information on the Automatic Stay

The effects of the automatic stay may change depending on the state in which you file bankruptcy. Different courts may treat similar violations in a different manner.

For example, some courts may have more patience with creditors who ignore the automatic stay, while other courts could have little tolerance for rogue creditors.

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