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What is an automatic stay in Bankruptcy: Nature and Scope of Stay
One of the most important features of bankruptcy law is the stay of creditor actions that comes into effect automatically when a bankruptcy petition is filed. It stops everything including all collections, civil actions, garnishment proceedings and foreclosure in progress. This is a comprehensive stay and no bond (unlike civil courts) is required. A violation of this stay has deeper implications and greater punishments. Everything is directed toward federal courts and federal bankruptcy jurisdiction. However, no area of bankruptcy law gives rise to more litigation than the stay. The debtor can use the stay to stop the foreclosure, eviction or any of the dissection of his/her property. Instead, it can request an organized discharge or reorganization of its property.
How it is done?
The filing of a petition under any chapter of the Bankruptcy Code stays almost all efforts by creditors to enforce their claims against the debt or the debtor’s property. Just mere filing of the petition brings the stay into motion. Every bankruptcy filing has an inherent advantage of a motion to stay which comes into play immediately. This stays is automatic. It arises by operation of law. A petition is deemed filed when it is in the custody of the clerk or filed electronically. The automatic stay freezes the rights of the debtor’s creditors as of the date of the petition to ensure that the claims against the debtor’s estate are resolved in an orderly fashion and in accordance with the Bankruptcy Code. The stay prevents creditors from acting outside the bankruptcy code. The automatic stay applies to all actions against the debtors and his/her property. It prevents creditors from taking any judicial or non judicial actions. It also compels them to undo any action done in violation of the stay.
Whether Notice of the Stay Required.
No notice need to be given for its implementation. How a notice would stop an early automatic stay? It is binding even on those creditors who do not know the debtor is in bankruptcy. The stays need not be formally served on creditors to be effective. It is important to the debtor that creditor 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.
What are the consequences of a violation of stay?
Most courts find all actions violating stay as void. Some courts hold them merely as voidable. Acts done in violation of the stay would be set aside by the court. A creditor who knowingly do any action against the automatic stays can face a contempt proceedings or a claim for damages under 11 U.S.C. Section 361(k)(1). A willful violation of the stay does not require specific intent to violate the stay. 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. Again, if the violation is egregious, the debtor may be awarded punitive damages.