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Do creditors violate the Chapter 7 bankruptcy automatic stay?

On Behalf of | May 15, 2019 | Chapter 7 Bankruptcy |

Being overwhelmed by debt creates a constant struggle for many Texas residents. Phone calls, threats of lawsuits and more only serve to make the situation worse. For this reason, many of them decide to file for Chapter 7 bankruptcy, partly in order to take advantage of the automatic stay, which bars creditors from engaging in collection activities during the proceedings.

The problem is that some creditors fail to adhere to the automatic stay. Filers may continue to receive calls and other communications from their lenders. The question is whether these actions are deliberate or unintentional on the part of creditors.

The fact is that even though the automatic stay goes into effect upon the filing of the bankruptcy petition, creditors may not receive notice of it for a week or so. If filers receive calls, they need to inform the caller of the filing. More than likely, the person on the other end of the phone will request at least the case number and the court in which it was filed. If calls continue after notification, the contact could go from accidental to intentional, which does violate the law.

When a creditor violates the automatic stay, there may be consequences. For instance, if a creditor repossesses property after the stay goes into effect, the court will likely demand its return to the individual. If the action was intentional, the filer could also receive restitution for any expenses incurred in connection with the repossession ranging from rental car fees to attorney’s fees and more. It should be noted that creditors can petition the court for the right to recommence collection actions such as repossessions and foreclosures despite the automatic stay.

Filing for Chapter 7 bankruptcy should allow Texas residents some breathing room in order to work out their financial difficulties. As part of this endeavor, they should not have to deal with collection actions. For this reason, the U.S. Bankruptcy Code includes repercussions for creditors who fail to respect the automatic stay.