What is automatic stay and what triggers its scope and time period?

Of course we get phone calls from harassed debtors either about wage garnishment which is in progress or a date for foreclosure is set and cannot be changed. One of the most important features of bankruptcy law is the stay or creditor actions that comes into effect automatically when a bankruptcy petition is filed. Again, the implicit idea of many bankruptcy filings is to trigger an automatic stay and take advantage of a fluid situation. An automatic stay is implicit in any bankruptcy filings, no other motion for injunction needed to be made. The bankruptcy code offers to stay as protection for debtors to help resolve their financial woes as well as it protects debtors from further damages from its creditors. The debtors can use the stay to stop the liquidation or evaporation of its financial interests in any exempted property. Automatic stay is a reality in almost all bankruptcy proceedings. A bankruptcy petition would trigger an automatic stay except in the case of serial filers. Again, action taken by the creditors are either void or voidable by the court. The automatic stay applies to both voluntary and involuntary proceedings. The stay is automatic. It arises by operation of law on the filing of a voluntary or involuntary petition. A petition is filed when placed in the custody of the clerk of the court. No hearing is required before the stay becomes effective. No court order is required.

The automatic stay freezes the creditors rights. The stay prevents creditors from acting outside bankruptcy. They can file motion to lift stay within the confines of bankruptcy court only. Again, it compels them to undo any action taken in the very past.

Does the Stay Require Notice?
The stay does not depend on notice to affected creditors for its validity. It is binding even on those creditors who have no knowledge of bankruptcy. Once they are informed they can become knowledgeable, however, knowledge is not an important thing. They need to restore anything taken from debtors as debtors are entitled to have retroactive relief from their actions or misdeeds.

Consequences of Violations of Stay?
This is an important matter as court would declare all such actions as violations and “void” them even if taken without knowledge of the stay. See, e.g., In re Myers, 491 F.3d 120 (3d Cir. 2007). A contempt proceeding can be triggered or a claim of damages under 11 U.S.C. Section 362(k)(1). 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 costs and attorneys’ fees is mandatory for willful violations of the stay. The standard for imposition of damages under Section 362(k) is that the defendant knew of the automatic stay, and the actions which violated the automatic stay were intentional. The court need not find a specific intent to violate the stay. Punitive damages can be awarded if the violation is egregious. A proceeding seeking damages for violation of the stay under Section 362(k) is a core proceedings. Again, stay is effective without notice, it is important to debtor that creditors learn of the stay.Proper notice to creditors may save the debtor the expense of getting the court to set aside collection actions taken in ignorance of the bankruptcy. All creditors are entitled to notice of the order for relief. Again stay applies only to pre-petition claims before a bankruptcy case is started.


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