Monday, September 21, 2009

Automatic Stay

An understanding of the US Bankruptcy Code’s “automatic stay” provisions is essential to understanding how bankruptcy law can help you.  You should study when it applies and when it does not. Bankruptcy stays principally arise out of Sections 362, 1301, and 105. The mere filing of a chapter 7 case automatically triggers the Section 362 stay; whereas the filing of a chapter 13 case automatically triggers both the Sections 362 and 1301 stays. The Section 105 stay is imposed only after a motion and hearing---similarly to an injunction motion.

The automatic stay prohibits the commencement or continuation of judicial proceedings that were or could have been commenced prior to the bankruptcy case filing, with some exceptions. These exceptions should be discussed in future writings. The stay also prohibits creditors from non-judicial attempts to collect non-exempt debts owed prepetition, including attempts via phone, fax, email, letter, etc.

Creditors need to proceed with great caution, as if treading carefully on a mine field. On one hand, unintentional violation of the stay may needlessly wastes the court’s and litigants’ time and treasury. An action that violates Section 362 is either void or voidable; consequently, the results of a protracted proceeding may be a nullity or may be nullified. On the other hand, an intentional violation of the automatic stay may result in the above plus sanctions, including damages, costs, attorney fees, and even punitive damages for egregious conduct. The sanction could even be assessed against the attorney!

Warmest Regards,

Bob Schaller

Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm

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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