Automatic Stay: Violations and Creditor Consequences

By Cara O'Neill, Attorney

You’ve likely heard that bankruptcy will immediately stop harassing creditor calls and other collection actions. It’s true. When you file a case, an order called the “automatic stay” goes into effect prohibiting creditors from taking steps to collect money from you. Most importantly, the law has teeth. You can bring a violating creditor before the bankruptcy court to face the consequences.

(You can learn more by reading What Is the Automatic Stay in Bankruptcy?)

What Constitutes a Violation of the Automatic Stay?

When you file for bankruptcy, most pending and ongoing debt collection actions must come to a stop. Not only does the stay prohibit telephone calls and letters, but it extends to creditor lawsuits (suits for nonpayment of debt) and wage garnishments (paycheck deductions), too.

The stay doesn’t prohibit all adverse actions, however. Exceptions exist. For example, the following can continue:

  • certain family law matters, including the collection of child or spousal support
  • a criminal action against you
  • certain eviction actions (depending on the law of your state)
  • some tax-related measures, such as an audit, or
  • the collection of a debt you incurred after you filed for bankruptcy.

A creditor can also take steps to ask the court to lift the automatic stay. In most cases, the court will grant the request if doing so won’t siphon bankruptcy funds away from another creditor. For instance, the court might allow a government agency to continue an action for an alleged environmental pollution claim, or, allow your mortgage lender to proceed with foreclosure if you’re behind on your house payment and there isn’t enough equity in your home to cover the amount that’s outstanding. (Because a mortgage lender has a secured claim, it’s entitled to pay off its debt from the home proceeds before any other creditors can do so.)

Finally, the stay might not go into effect, at all. If you’ve filed multiple cases within the previous year, filing another bankruptcy might not give you the protection you seek. If you’re facing a lawsuit or foreclosure, or you’ve filed numerous bankruptcy cases, it's best to talk with an attorney about the effectiveness of the automatic stay before filing your case.

Steps You Can Take If A Creditor Violates the Stay

If you receive a collection call after you file for bankruptcy, it’s likely an accident. Creditors rarely violate the stay—at least not on purpose. They’re aware of the consequences of ignoring the court’s order.

First, you’ll want to check that you included the debt on your bankruptcy petition. You have an obligation to ensure the creditor knows about your case, and you do so by listing all debts in the paperwork you file with the court. If the creditor isn’t on the list, contact an attorney to correct the problem. Otherwise, you might remain responsible for the obligation.

If you correctly listed the debt, it’s still likely that the contact was inadvertent. To prevent future calls, give the creditor the information it will need to verify that you indeed filed for bankruptcy. Here’s what you’ll provide:

  • Your bankruptcy case number.
  • The date that you filed for bankruptcy.
  • The court where you filed your case.

You can find this information on any document sent to you by the court, such as the notice of case filing—one of the first documents that you—and your creditors—receive. For instance, a common notice is the Notice of Chapter 7 Bankruptcy Case—No Proof of Claim Deadline. You’ll find all of the information in the box at the top of the form. The creditor will be able to use it to access Pacer—the online bankruptcy filing system—to verify your filing and that the automatic stay is in place.

Consequences for Continued Creditor Violations

Although the creditor isn’t likely to call back, it can happen. If you do receive another call, you’ll have ammunition to take action. Why? Creditors face liability for damages to debtors for automatic stay violations. You can seek actual damages, punitive damages, attorney's fees and costs when a creditor willfully violates the automatic stay. All you must prove is that the action is willful.

A willful violation occurs when the creditor has reason to know of the bankruptcy filing and contacts you anyway. Willful means that the creditor knew the stay was in effect. If you previously gave the information necessary to verify that you filed for bankruptcy during the first call, you’ll likely have all the evidence that you’ll need to prove a violation if you receive a second call.

Holding the creditor accountable might (or might not) be something that you feel comfortable doing yourself. If you’re not familiar with the court process, you’ll want to contact a bankruptcy lawyer. The attorney will help you decide the best action to take. It will include filing either:

  • a motion that asks the judge to issue an “order to show cause” requiring the creditor to explain the behavior, or
  • a lawsuit.

The steps the attorney recommends will depend on the extent of the harm and if you are likely to receive money as a result (damages). The greater the chance that the attorney can get a large sum, the more likely the attorney will consider filing a full-blown lawsuit.

Questions for Your Attorney

  • Is it a violation of the automatic stay for a creditor to repossess my car or shut off utility services after I file for bankruptcy?
  • Which would be better in my case—requesting an order to show cause or initiating a lawsuit by filing a complaint?
  • If I take action, can I force the creditor to pay attorneys’ fees?
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