How Does The Automatic Stay Work To Prevent Creditors From Collecting?

The constant calls and letters from creditors when you are behind on debt are unbearable. It is difficult to formulate a plan for recovery when your phone constantly rings. Take comfort in knowing that once you file for the protection of bankruptcy, those calls stop. Not only do the collection calls stop, but any pending collection litigation must also end. Likewise, if your wages are being garnished by a creditor to satisfy a judgment, that garnishment must cease. Restoration of a full paycheck goes a long way in your efforts to take charge of your finances and your future.

The reason the calls, lawsuits and garnishments come to an end upon the filing of bankruptcy is a provision of the Bankruptcy Code called the automatic stay. Upon filing for bankruptcy, the automatic stay automatically stops (or stays) creditors from trying to collect from you. Any pending collection cases or garnishments are also stopped by the imposition of the automatic stay. This legal mechanism gives consumers a chance to take a break and focus on the task at hand of obtaining debt restructure or relief. If a creditor disregards the automatic stay, the penalties can be severe.

One of the most common defenses a creditor will raise to a claim for which they have violated the automatic stay is that the violation was unintentional, or the result of excusable neglect. The court will generally allow the matter to proceed for final determination if the bankrupt debtor raises issues sufficient enough to create a question of fact as to the circumstances surrounding the violation. This was the court’s decision in In re Krista Lynn Purvis. Relying on previous cases, the court held the debtor alleged facts sufficient to survive the creditor’s claim that the violation was not willful and any prosecution of the matter should be dismissed. The facts were:

  • The creditor, prior to the bankruptcy filing, initiated a foreclosure proceeding against Ms. Purvis.
  • The lender was aware of and had participated in the bankruptcy proceeding, yet still posted a notice of sheriff sale of the consumer’s home.
  • The mortgage holder creditor sought to continue the sale, and alleges the requested postponement was due to the bankruptcy filing and an adherence to the automatic stay provision.
  • The lender further argued any violation was not willful.

In this case, the court held the consumer had raised allegations sufficient to proceed with a suit against the creditor for violating the automatic stay. This case demonstrates the seriousness of filing for bankruptcy and the court’s requirement to examine allegations of stay violations. If you believe one of your creditors has violated the provisions of the automatic stay by continuing in collection efforts, or undertaking other prohibited acts, consult a bankruptcy relief attorney. You have options when your rights within the bankruptcy case are disturbed. The Bankruptcy Court is a forum for relief and the Courts undertake this job with genuine interest of the filer in mind.

David R. Black helps people in Pennsylvania get out from under the burden of financial stress. When debt becomes unmanageable, we help  you reach your goal of financial stability. Bankruptcy is designed to help the honest, but unfortunate debtor get a financial fresh start. When facing seemingly insurmountable debt, call our office to discuss your options.