The consequences of ignoring an automatic stay

On Behalf of | Mar 4, 2020 | Bankruptcy, Chapter 7 |

When Florida consumers file Chapter 7 or Chapter 13 bankruptcy petitions, what is known as an automatic stay is issued. This is a court order that requires creditors to put an immediate halt to all of their collection efforts. Automatic stays put an end to daily harassment from bill collectors, stop debt-related lawsuits and prevent wage garnishments, and creditors can be ordered to pay compensatory damages, punitive damages and attorney’s fees when they are ignored.

While automatic stays expressly prohibit further collection efforts, the issue of whether or not creditors are required to take action to reverse steps that have already been taken is less clear. Federal appellate courts have ruled inconsistently on the matter, which has led to a great deal of legal uncertainty. The U.S. Supreme Court signaled that it intends to resolve the issue later this year.

A ruling over the question of inaction following an automatic stay was recently handed down in Virginia. A divorce attorney was ordered to pay $2,400 to one of his former clients because he refused to terminate a wage garnishment that he had obtained to collect unpaid legal fees. A $10,000 judgement for unpaid attorney’s fees was included in the bankruptcy petition, and the court determined that refusing to stop the garnishment amounted to an improper attempt to control the bankruptcy petitioner’s property.

People who are struggling to cope with unmanageable financial situations often decide to file for bankruptcy because they want daily calls from creditors and bill collectors to stop. Attorneys with experience in this area could explain how an automatic stay would accomplish this, and they could also describe how filing a Chapter 7 bankruptcy petition offers an escape from overwhelming debt and provides the opportunity for a fresh start.