Consumer Law

Chuck Newton Answers The Question "Why?" The Bankruptcy Stay Is So Often Violated

By M. Stan Herring

When you file for bankruptcy protection, an automatic "stay" goes into effect that prohibits the creditors from taking collection action against you. Often times, this stay is violated by both small companies and huge national banks. The question that is often asked is "Why?" Why would this be done. Chuck Newton devotes his practice to fighting stay violations and in a recent post on his excellent blog he has answered this question. Please read the entire post but here are some key points he makes:

Are they intentionally violating the automatic stay?

Well, the answer is often no. They are not intending to violate the stay. It is usually based upon institutional arrogance. No one person is handling the entire matter, the person who is confronted with the issue does not have the complete authority, training, experience, or will to stop what is happening. The person taking the demand to stop hears so many complaints and explanations it just goes in one ear and out the other. One cog is given instructions on how to perform and it dare not do anything else. Sometimes it is based upon a misunderstanding of the law or the remedies available to the creditor or collector, the creditor or collector dares to rely on its own instincts and not consult a bankruptcy attorney as to whether it is right in its assumptions. A creditor or collector too often finds it is fine to rely on its own opinion that requires you or your attorney to prove them wrong.

Ironically, one of the biggest reasons companies continue to violate the stay is:

What does not help is that many of the misconceptions harbored by creditors and collectors are not as a result of bad legal advice. It is a result of bankruptcy attorneys continually letting them off the hook for past indiscretions. I cannot tell you how many times, especially from carry-the-note car lots, I have heard the refrain that I have always done this in the past and I never got sued.

As Chuck points out, it doesn't really matter "why" it was done - you simply have to show the following and you will have proved your case:

The good news is that an aggrieved debtor does not have to prove (or for that matter disprove) the intend to the creditor or collector who violated the automatic stay. This is the willfulness standard, and it is followed by nearly every jurisdiction in the country. Under 11 U.S.C. § 362(h) of the pre-BABCPA Code, or 11 U.S.C. § 362(k) of the post-BABCPA Code, damages are mandatory, including attorneys' fees and costs upon the finding that (1) one or more of the automatic stay provisions of 11 U.S.C. § 362(a) were violated, (2) there is not an exception for the action pursuant to 11 U.S.C. § 362(b), (3) the creditor or collector had notice of the bankruptcy filing, and (4) the creditor intended the action it undertook to violated the automatic stay.

If your creditors are violating the automatic stay, please get with your bankruptcy attorney as there are options on how to deal with it - including suing the creditor as described above. Thanks again to Chuck for such a good posting on this important issue.

Full post as published by Alabama Consumer Blog on March 01, 2008 (boomark / email).