One of the key benefits if you’re considering filing bankruptcy is that it stops harassing creditors from contacting you. You know the ones. They call you three or four times a day. They may even have you scared to answer the phone. Maybe they have even started a lawsuit against you or have stared garnishing your wages. Perhaps you are playing cat and mouse with a repo man who is trying to get your vehicle. Your home can be days away from a foreclosure sale. A bankruptcy filing will stop all of these scenarios. The automatic stay in a bankruptcy proceeding is the technical term that stops your creditors from continuing their collection activities.
11 U.S.C. Section 362
The filing of a bankruptcy case automatically invokes the stay provisions of the Bankruptcy Code. The continuance of any action by most creditors against the debtor or the debtor’s property is prohibited under 11 U.S.C. 362. The stay is effective automatically and immediately upon the filing of a bankruptcy petition. Formal process is not required, and no particular notice need be given in order to subject a party to the automatic stay.
Protection From What?
The automatic stay gives the debtor protection from his creditors in order for the bankruptcy process to be implemented in a fair manner to debtors and creditors alike. It prohibits starting or continuing lawsuits, any collection efforts, repossessions, foreclosure/trustee sales, and garnishments. The automatic stay will remain in effect until a creditor is granted permission from the court to continue collection efforts (this is commonly called “lifting the automatic stay”) or the debtor receives a discharge. The court will only allow the stay to be lifted if a creditor can show cause for why it should be granted. After the discharge, the discharge injunction prohibits collection activities, but the discharge injunction can be dealt with in a separate article altogether.
Exceptions to Automatic Stay Protection
The automatic stay does not prohibit all creditors from collecting or all suits to continue. Some common occurrences that the stay does not offer protection for are criminal proceedings, collections of family support (child or spousal), and collections against property that is not property of the bankruptcy estate. Also, the automatic stay does not stop or prohibit a tax audit or assessment. It does, however, prevent the collection of taxes.
Serial Bankruptcy Filings
Under current law, serial bankruptcy filings (more than one filing within a 12 month period) limit the automatic stay. The stay remains in effect for the duration of the bankruptcy proceeding in the first filing. If a second bankruptcy is filed within 12 months of the first, the automatic stay is limited to 30 days unless it is extended by the court after a request by the debtor. A third and any subsequent filings within 12 months receive no automatic stay and the debtor must ask the court to implement the stay.
Violations of the Automatic Stay in Arizona
Pursuant to 11 U.S.C. 362(k), anyone who willfully violates the automatic stay is liable for actual damages, including costs and attorney fees, caused by the violation and sometimes for punitive damages. In the Ninth Circuit, which includes Arizona, for a violation to be willful, a creditor does not have to have specific intent to violate the automatic stay. McHenry v. Key Bank (In re McHenry), 179 B.R. 165, 167 (9th Cir. BAP 1995). A violation of the automatic stay is willful if 1) the creditor knew of the stay and 2) the creditor’s actions were intentional. Goichman v. Bloom (In re Bloom), 875 F. 2d 224, 227 (9th Cir. 1989). Attorney fees are limited to fees incurred as a result of enforcing or remedying the stay violation. Attorney fees incurred in prosecuting the adversary proceeding to calculate the damages are not included. Sternberg v. Johnston III, 582 F. 3d 1114 (9th Cir. 2009). Since the court usually takes several days to mail creditors a notice of the bankruptcy, the debtor or debtor’s counsel should be pro-active and give actual notice to creditors who might take action without knowledge of the stay.
Contact a Phoenix Automatic Stay Bankruptcy Lawyer
If you live in the Phoenix, Arizona area and would like information about how the bankruptcy stay would work in your particular set of circumstances, contact our law office or call 866-703-3287 for a free consultation with a bankruptcy attorney.