Friday, January 15, 2010

Automatic Stay

The "automatic stay" provisions of the US Bankruptcy Code comprise an integral part of the bankruptcy protection process.

The filing of a bankruptcy petition results in the immediate implementing of the automatic stay. No motion need be filed, and no order need be entered by any court. The automatic stay operates as a broad stay of most types of creditor activity, including “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate” and “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.” Section 362(a)(3) and (5).

The automatic stay is one of the fundamental debtor protections provided by the Bankruptcy Code. It gives the debtor a breathing spell from his creditors; it stops all collection efforts, all harassment, and all foreclosure actions. It also permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove the debtor into bankruptcy.

The automatic stay, moreover, is not solely for the benefit of the debtor. It also protects the debtor’s creditors and promotes the goal of equality of distribution by ensuring that individual creditors do not seize assets that would otherwise be available to pay allowed claims in the case or take other actions that would interfere with administration of the case.

A violation of the automatic stay may be redressed by the bankruptcy court under its civil contempt powers. Additionally, the Bankruptcy Code gives an individual debtor a right of action for damages, including punitive damages and attorney’s fees, resulting from a willful violation of the automatic stay.

Therefore, the “automatic stay” provisions of the Bankruptcy Code should not be treated lightly or dismissed out of hand. The stay violation sanction can be significant. The sanctions apply equally to creditors whose intentional acts violate the stay, even if said creditor had never heard of the concept of the “automatic stay.” The important facts are whether the creditor knew a bankruptcy case had been filed and whether the creditor’s acts were intentional.

Best advice…when in doubt, contact a bankruptcy attorney for guidance before taking action.

Warmest Regards,

Bob Schaller

Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
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Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.

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