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The Automatic Stay: But What If a Creditor Violates This Potent Legal Protection?

Filing bankruptcy provides several protections to debtors, including the automatic stay. This is an automatic injunction that begins the moment the bankruptcy petition is filed, prohibiting creditors to collect debts from someone who has declared bankruptcy. In addition, an automatic stay immediately stops most civil lawsuits filed against you, prevents the disconnection of water, electric, gas, or telephone, and it stops foreclosure proceedings. And if you are being evicted from your home, the automatic stay might provide some temporary help.

With the protections it offers, what should you do when credit companies ignore or try to get around the automatic stay?

First, it is important to determine whether the violation was deliberate or accidental. Even though it is meant to prevent creditors from taking certain forbidden actions, sometimes they still do. There may be many reasons for this, but most often it is just a timing issue or their lack of knowledge of the law. If a creditor violates the stay in a purposeful effort to thwart the bankruptcy code, the creditor can be held accountable for violating the automatic stay. It is essential to find out if creditors received legal notice of automatic stay upon bankruptcy filing.

Inform the creditor of your bankruptcy

This generally gets the creditor to correct its violation. If they don’t, the next step is to notify the bankruptcy court. The court can endorse a violation of the automatic stay under its power of contempt since the creditor violated the court’s order. The court can impose fines, gauge attorney’s fees, and require the creditor to pay damages.

Can a creditor try to lift the stay notice?

Since the automatic stay isn’t definite or unchangeable, creditors can ask the court to remove the stay which then allows collection efforts to resume. If lifting the automatic stay is granted, the creditor is free to continue pursuing its debt. Thankfully it is uncommon for multiple creditors to file motions to lift the stay, and even one or two doesn’t happen that often. In the event a motion is filed, it is the burden of the creditor to convince the court that there is a valid reason to lift the stay.

When should you file a lawsuit?

If a creditor continues to collect in violation of the automatic stay, it is time to file a lawsuit. If at any time you think a debt collector has crossed a line or violated an order, consider talking to an attorney to get advice about your options and whether your case merits a potential lawsuit.

In each of the above scenarios a debtor would benefit greatly with a bankruptcy attorney. That is the best choice to help figure out how to proceed, to ensure you’re protected, and that all your options are explored.

This article should not be taken as legal advice. If you’re considering bankruptcy or another legal debt relief option, you need to consult an attorney for guidance. If you’re in New Jersey and seeking legal assistance, we can help you.

Brenner Spiller & Archer is a New Jersey law firm that is dedicated to helping families find relief from the burden of debt and other financial woes. For more than 35 years, our bankruptcy lawyers have provided effective guidance on all debt relief matters to clients throughout Central and South Jersey.

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