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Affiliated Attorneys, LLC Blog

Monday, February 20, 2017

What happens when a creditor doesn’t comply with the automatic stay in bankruptcy?


When a bankruptcy petition
is filed in the United States, the bankruptcy court issues an automatic stay on all collection activities against the individual who filed the petition. This means that any person or company who holds a debt against the petitioner is prohibited from seeking payment of the debt in any form or from repossessing the asset against which the debt is leveraged. This is designed to preserve the role of the bankruptcy court to consolidate and liquidate a petitioner’s assets as necessary to make creditors whole, as well as its responsibility to discharge certain debts at the end of a bankruptcy.

When a creditor continues to make collection efforts after an automatic stay has been granted, it can be penalized by the bankruptcy court. The court may award a bankruptcy petitioner punitive damages and attorney’s fees for the creditor’s noncompliance with the stay. In order to do this, a petitioner must advise his or her attorney of the violation and ask to file a motion to enforce the stay. The more flagrant the violation, the more money might be awarded in punitive damages. A single collection call is less flagrant than the filing of a lawsuit to collect the owed amount. It is not necessary to send notice of the bankruptcy to the creditor, as all creditors are notified by the bankruptcy court at the inception of each case. If the collection attempt was made by a third-party debt collector, an attorney might be able to make a claim under the Fair Debt Collection Practices Act, or the FDCPA.

There are many cases , however, when such a motion will not be successful. Sometimes, a creditor asks the court for permission to lift the stay where the debt owed is secured and a debtor is behind on payments. If proper paperwork is not completed within 30 days of a petitioner’s filing, the automatic stay may be lifted without any requests being filed with the court. A specific request for the stay to continue must be filed for some petitioners who have previously filed for bankruptcy. Court actions for child support, alimony, taxes, and certain evictions may proceed even though a stay was issued. 


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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