Lawyers.com > Understand Your Legal Issue > Bankruptcy > Consumer Bankruptcy > Creditors and Violations of the Automatic Stay

When a debtor files a bankruptcy petition, an automatic stay is imposed on any collection actions against the debtor (11 U.S.C. § 362 ). A stay is a court order directing creditors not to proceed with any further actions against the debtor. Actions taken in violation of the stay are void or invalid.

Any postpetition actions, or actions taken after the bankruptcy filing, including foreclosure sales, repossessions and judgments, are without effect. This is true whether or not the person violating the stay, also called the violator, acted with knowledge of the stay, though there are limited exceptions to this general rule.

For example, a court has found that the postpetition sale of a repossessed car was invalid even though the bank had no notice of the stay, and where the debtor did not willfully conceal the existence of the stay and did not seek to gain a financial advantage by letting the bank violate the stay. A court may hold that an action taken in violation of a stay is not void if the debtor willfully failed to inform the creditor that an automatic stay was in force, and then fraudulently tried to obtain a financial advantage. A debtor should not expect to deceive a creditor about his bankruptcy case, and still expect to be protected by the automatic stay.

Courts have the power to undo violations of the stay by injunction, which is a court order directing a party to take or to refrain from taking a specific action. The courts can also avoid transfers made after the filing of the bankruptcy petition (11 U.S.C. § 549). This means that the courts can declare that a sale was invalid and order the property restored to the bankruptcy estate, which refers to the debtor's assets. Further, the courts can order other legal and equitable remedies. An equitable remedy is relief obtained by the performance of an action, such as returning an item, in order to reach a just result in a situation. Numerous courts have held, for example, that postpetition credit union deductions or repossessed automobiles must be returned.

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