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What Are Your Rights If a Creditor Violates the Automatic Bankruptcy Stay?

ignore a debtor’s bankruptcy rights by violating the automatic bankruptcy stay can be hauled into court and made to answer for their improprietiesWritten by Ian Ribald
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Creditors who ignore a debtor’s bankruptcy rights can be hauled into court and made to answer for their improprieties.
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When a debtor files a bankruptcy petition, the “automatic bankruptcy stay” is triggered. The automatic stay is the very powerful federal bankruptcy law that makes it illegal for creditors to take any further action to collect a debt.
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Although most creditors know that violating the stay is a serious violation of federal law, some creditors will nonetheless violate the stay by continuing to make collection calls or attempting to collect in other ways.  Creditors do this at their peril as they can be severely punished.
 
When a creditor violates the automatic bankruptcy stay, a debtor can apply to the bankruptcy court to recover damages. 
 
The debtor must demonstrate two elements:
 
        1.  Show that the creditor’s actions were willful
        2.  Demonstrate that there was actual injury.
 
The concept of a “willful” violation of the stay  means that the creditor was motivated by a specific intent to violate the stay. The bankruptcy courts have interpreted “actual injury” to include a number of different types of injuries. Some actual injuries include repossessing a debtor’s vehicle, filing a lawsuit against the debtor, garnishing wages, and a continuing other kinds of efforts to collect debt.
 
As a result, when a creditor willfully violates an automatic stay, a debtor who has received actual injury may recover damages, including costs and attorney’s fees.
 
Can a Debtor Recover Punitive Damages If a Creditor Violates the Stay?
 
Generally, punitive damages are not collected for a minor violation of a stay.  However, if a court finds that the violation was malicious or particularly egregious, punitive damages will likely be awarded.
 
If a Stay Violation Causes a Debtor to Suffer from Emotional Distress, Can the Debtor Be Compensated for That?
 
Some courts have been willing to allow a debtor to recover for damages based on emotional distress in egregious situations.  If the debtor can show that he or she suffered unusual mental distress as a result of the violation, the bankruptcy court may award extra damages against the creditor.
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Botttom line:  violations of the stay are relatively rare.  However, if you are the victim of a bankruptcy stay violation, talk with your bankruptcy attorney to determine how to best protect your rights.
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Note: Ian Ribald is a summer intern with our firm.  He recently finished his second year of law at Touro Law School.
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