A 12-part Series On All You Need To Know About The Process of Filing for Chapter 7 Bankruptcy
Part Three – The Automatic Stay
There are several things that are triggered when a bankruptcy petition is filed. Not the least of which is the Automatic Stay. Inside a bankruptcy petition are names and addresses of creditors. If there are lawsuits, then the Court and Opposing Counsel are also listed. This is so a notice can be sent informing everyone that a bankruptcy proceeding has been initiated. As soon as a bankruptcy case is filed, the automatic stay immediately goes into effect and generally prevents creditors from taking most actions against property of the bankruptcy estate, the debtor, and the debtor’s property.
The automatic stay is so powerful that it suspends any non-bankruptcy court’s authority to continue judicial proceedings pending against the debtor. Ultimately, all collection activity against the debtor must stop. This includes collection lawsuits. The automatic stay imposes an affirmative duty to discontinue post-petition collection actions.
There are some acts that are not barred. For example, requests for payment and statements simply providing information to a debtor are permissible.
The automatic stay remains in place until the stay is lifted or expires. This generally happens when the estate property terminates due to discharge and the property not liquidated by the trustee reverts to the debtor. The problem is, by then the debt is usually discharged and nothing can be done to collect. If the bankruptcy is dismissed the automatic stay ceases because the bankruptcy court no longer has jurisdiction and the authority for the automatic stay is gone.
Creditors are not without tools, however. Creditors can petition the Court to have the automatic stay lifted. To get relief for the automatic stay a creditor must show cause or that the debtor’s petition was filed as part of a scheme to delay, hinder, or defraud creditors.
If a creditor violates the automatic stay, the Court must award actual damages and could award punitive damages. The violation of the stay must be willful. To be willful the creditor must know of the automatic stay and intentionally violate it. One of the most unusual aspects of these claims is there seems to be no statute of limitations but it must be filed in an existing bankruptcy proceeding.