Monday, December 16, 2013
The Automatic Stay is found in section 362 of the Bankruptcy Code. Section 362 says that the commencement of a bankruptcy case puts a stay to most actions that a creditor may try to take against a debtor or their property.
Debt Collection? Stopped.
Wage garnishments? Stopped.
Harassing creditor calls? Stopped.
Attempts to perfect a lien on a property? Stopped.
When a bankruptcy petition if filed, a notice is sent to every creditor informing them that the case has been filed. Therefore all the creditors are aware of the bankruptcy case and should cease with any collection activity expect has otherwise stipulated through the court.
The majority of creditors try to obey the law and abide by the automatic stay.
But not all do.
When creditors don't stop their efforts to collect and continue to call and send letters they become subject to sanctions. Section 362(k) of the Bankruptcy Code provides that an individual debtor is allowed to recover damages from a creditors who violate the terms of the automatic stay. So, if a debtor sees that their creditors have violated the automatic stay they have the choice to bring legal action against them for damages.
This includes secured creditors that didn’t document their loans properly and tries to get the infirmities resolved post-petition. In these days of securitized mortgages, many banks who work with mortgages discover after a petition for bankruptcy has been filed that there are problems with the documentation of the mortgage. Those types of problems cannot be fixed after the case has been filed.
If a secured creditor tries to fix these documents problems whether it is by trying to record an assignment, or taking any other action that should have happened long before, that creditor can be subject to the same kind of damages as creditors who make harassing phone calls.
All and all the automatic stay helps debtors focus on their bankruptcy and not their creditors.
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