What is Automatic Stay and What Happened on Its Violations?

One of the most important features of bankruptcy law is the stay of creditors action that comes into effect immediately and automatically (no separate action required) upon filing of the bankruptcy petition. The filing of a petition under any chapter of the Code by or against a debtor stays almost all efforts by creditors to enforce their claims. The automatic stay only applies to actions and acts against a debtor or its property and the estate or its property. It does not apply to actions or acts by a debtor or estate. As our readers may notice, this stay is automatic. It arises from the operation of law on the filing of a voluntary or involuntary petition. This freezes all actions by creditors until and unless a motion to lift stay is granted. by the Bankruptcy Court.

Is Notice of Stay Required?The stay does not depend on notice to all those who are affected by this action. It is binding even on those creditors who has no knowledge about it.

A creditor who takes action against the debtor with the knowledge of the bankruptcy can place him/herself in deep trouble and can be held liable for contempt of court. A willful violation of the stay does not require specific intent to violate the stay. Not even a good faith mistake of law or a legitimate dispute as to legal rights relieve a willful violation.

The Bankruptcy Code makes it clear that any individual debtor injured by a willful violation of the stay may be awarded actual damages resulting from the violation, including cost and attorneys fees. In re Price, 42 F.3d (7th cir. 1994). If the violation is egregious, the debtor may be awarded punitive damages. (11U.S.C. Section 362(k)
Although the stay is effective without notice, it is important to the debtor that creditors learn of the stay.


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