The most important facet that exists in the beginning of a bankruptcy case is the “automatic stay.” This “stay” is a federal injunction that is imposed immediately upon the filing of a case. No further court order is needed. This “automatic stay” is found in section 362 of the Bankruptcy Code. The Bankruptcy Code is found in Title 11 of the United States Code. Therefore, immediately upon the filing of any bankruptcy case, the injunction takes effect to prohibit acts against the debtor or the debtor’s property. The debtor is the person, who filed for bankruptcy. Creditors are those to whom the debtor owes a debt.
A non-exhaustive list of examples of actions that are prohibited follows:
- Commencing a law suit, or continuing a law suit that had been commenced prior to the filing of the bankruptcy.
- Harassing the debtor by letter, phone calls or any other form of communication.
- Repossessing the debtor’s property.
It is also a violation of the “automatic stay” for a creditor to sell the debtor’s property after the filing of the bankruptcy, even if the creditor legally repossessed the property prior to the filing of the case. This is because all property of the debtor, whether fully owned or partially owned, becomes “property of the bankruptcy estate,” and must be preserved for the debtor. All “property of the estate” in the possession and control of any party must be released upon the filing of a bankruptcy case. This is found in section 542 of the Bankruptcy Code.
The property is deemed to be under the supervision of the Federal Bankruptcy Court. All parties, including law enforcement and/or governmental entities, and their employees are subject to the “automatic stay.” The power to enforce the provisions of the “automatic stay” lies within the authority of the Federal Bankruptcy Court. Those who violate the “automatic stay” can be punished under federal law via sanctions and fines. It is also a federal crime to tamper with “property of the bankruptcy estate.”
I have litigated dozens of actions against creditors and other parties, who had violated the “automatic stay.” In most of those cases, the party violating the “automatic stay” has had to pay my attorney’s fees for bringing the action, and also had to pay damages to my clients as well as punitive damages.
Since we do not expect most parties to understand bankruptcy law, we always provide them an opportunity to resolve the issues without litigation, and encourage them to seek counsel from an experienced bankruptcy attorney, as opposed to simply ignoring our concerns. Those who have acted prudently and taken that advice, have faired well. However, those who have chosen to ignore our concerns have paid substantially.
If you or someone you know is ever faced with the issue, please seek advice from The Cooper Law Firm.