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Consequences of Violating an Automatic Stay During Bankruptcy

 Posted on November 07,2019 in Bankruptcy

Consequences of Violating an Automatic Stay During BankruptcyWhen a debtor files for bankruptcy protection, the court will put an automatic stay on collecting the debt. This means that creditors must stop contacting the debtor with collection notices or attempting to repossess collateral properties until the bankruptcy is completed or the stay is otherwise lifted. Violating the stay is a serious offense that may result in court fines or the debtor filing a lawsuit against you. The severity of the penalty depends on whether you knowingly violated the stay and whether you continued to violate it after being told to stop.

Violation Examples

Once it is confirmed that you received notice of the debtor’s bankruptcy filing, you are expected to comply with the automatic stay. This means you are not allowed to:

  • Send letters to the debtor demanding repayment
  • Call the debtor about the debt
  • Garnish their wages or other monetary assets
  • Repossess properties without the permission of the court

Intentionally ignoring the automatic stay is a violation of the Fair Debt Collection Practices Act and may lead to sanctions that cost you thousands of dollars. The bankruptcy trustee will be your contact during the process.

Unintentional Violation

Your intentions, or lack thereof, behind your violation of the automatic stay make a difference when the court determines how it will respond. Sometimes, an internal miscommunication may cause someone affiliated with your organization to unknowingly violate the stay. When informed of your unintentional violation, your first step is to stop the activity that caused the violation. If the violation involved repossession or garnishment, the court may order you to return the assets to the debtor.

Lifting the Stay

Once you have complied with the automatic stay, you can evaluate whether you have a valid argument to lift the stay against you. Secured creditors are most likely to get their stay lifted because they are entitled to either repossess the collateral property or receive equitable value for it. A secured creditor may argue that:

  • Selling the property as part of Chapter 7 bankruptcy would not net enough money to compensate creditors.
  • It would lose money on the property if forced to wait until the end of the bankruptcy case to repossess it.
  • The debtor will not be able to catch up on payments through a Chapter 11 repayment plan.

The debtor has 30 days after filing for bankruptcy to state their intentions with collateral property on whether they will redeem the property or reaffirm the debt. If the debtor misses this deadline, the court will lift the stay on repossessing the properties.

Contact a Chicago Debt Collection Lawyer

A bankruptcy filing will disrupt your debt collection efforts, but it does not mean you will be unable to retrieve the debt. An Illinois debt collection attorney at Dimand Walinski Law Offices, P.C., will help you plan your next steps in response to the bankruptcy. To schedule a consultation, call 312-704-0771.


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