The moment you file for bankruptcy, an automatic stay goes into effect. An automatic stay stops your creditors from bringing lawsuits against you (and stops current lawsuits in their tracks), including foreclosure actions. It also stops wage garnishment, repossession and other collection efforts. This means that filing for bankruptcy stops creditor harassment; once the automatic stay is in place, your creditors must stop calling you.
What Actions Are Not Stopped by an Automatic Stay?
There are some lawsuits that can continue during bankruptcy. These include criminal cases as well as civil actions to establish paternity, modify domestic support obligations (child support and spousal support), collect support from non-estate property, determine or modify child custody and visitation, suspend a driver’s license under state law, intercept a tax refund, determine tax liability, and enforce a medical obligation.
Divorce and bankruptcy proceedings may be handled at the same time. However, property division during the divorce may be subject to the automatic stay.
These are only a few of the legal actions not affected by an automatic stay. The bankruptcy code contains many exceptions. To learn more, discuss the legal actions you face with your bankruptcy lawyer.
What if a Creditor Violates an Automatic Stay?
An automatic stay is similar to a court order. Creditors who violate an automatic stay may be required to pay the damages caused by their violation (such as returning an illegally repossessed vehicle), as well as punitive damages. Other creditors impacted by the violating creditor’s actions may also be able to bring a lawsuit against the violating creditor.
Furthermore, any legal action that a creditor takes in violation of the automatic stay is voidable. For example, if a creditor repossesses property during bankruptcy proceedings, the creditor must return the property to the debtor.
You should notify your creditors when you file bankruptcy, since it may be days before they receive the court notice. If the creditor has not received notice of an automatic stay, it will be difficult to hold the creditor responsible for collection actions taken during that time.
Source: 11 USC 362 (United States Bankruptcy Code, Section 362)