The automatic stay is a huge benefit for debtors

An Arizona bankruptcy lawyer will advise that one of the most important benefits of bankruptcy for debtors is the “automatic stay”.  As soon as a debtor files, all actions by all creditors must stop dead in their tracks.  This includes foreclosures, evictions, repossessions, collections, garnishments, lawsuits and harassing phone calls.  In other words, a debtor’s creditors are “stayed” from further enforcement of its rights.  For example, if you file bankruptcy 30 minutes before a scheduled foreclosure, the foreclosure must stop.  If you file bankruptcy after your employer receives a notice to garnish your wages, the garnishments must stop.  If you file for bankruptcy before receiving a judgment in an eviction action (called a “forcible detainer”), the eviction must stop.

A creditor violating the automatic stay will be subject to sanctions

Any creditor who continues any type of collection action prior to the debtor’s discharge will be subject to the debtor’s attorney filing a motion for sanctions. Note that a creditor can be sanctioned, even if the collection attempt was a mistake. For example, a creditor who accidentally sends a collection letter after the debtor filed bankruptcy will result in the debtor’s lawyer filing a complaint against the creditor to seek both damages and attorney fees. Damages a creditor may have to pay include not just the debtor’s out-of-pocket costs but also damages for the debtor’s emotional distress resulting from the creditor’s wrongful collection attempt. As such, creditors need to make sure they have internal processes to avoid accidental collection efforts, as there are grave consequences.

If you are a debtor in a case, you must notify your attorney immediately if you receive any collection letters, lawsuits, foreclosure notices, telephone calls, or other kinds of communications that may constitute a collection of a debt. Your bankruptcy attorney will bring the creditor’s wrongful conduct to the attention of the bankruptcy court for possible sanctions.

Is the automatic stay effective during the entire bankruptcy?

Does this mean that the automatic stay continues for the duration of a debtor’s bankruptcy?  For most creditors, the answer is yes.  However, a creditor may file a motion with the court to “lift the automatic stay”.  This is a motion to get permission from the court to allow the creditor to proceed with enforcing its rights.  For example, it is not uncommon for a mortgage lender to file such a motion so it may proceed with an inevitable foreclosure.  If there is no legitimate reason to stop the foreclosure, then the judge will likely grant the motion and allow the foreclosure to continue.  A debtor’s Arizona bankruptcy lawyer may argue to the judge that the automatic stay should remain in effect for certain legitimate reasons.  For example, if a debtor is applying for a home modification, the judge may deny the lender’s request to lift the automatic stay until the lender makes a decision regarding the modification.

Filing a bogus bankruptcy to cause undue delay – think again!

It is very tempting for a debtor to file bankruptcy to take advantage of the automatic stay simply to delay a foreclosure, repossession or eviction.  It is illegal to file a bogus bankruptcy just to delay a creditor from proceeding with its rights.  If a debtor responds to a creditor’s motion to lift the stay with bogus arguments for the sole purpose of further delaying a foreclosure, repossession or eviction, the debtor will get in serious trouble.  There is a “no tolerance” policy for this kind of behavior, especially in this climate where the United States Department of Justice is prosecuting frivolous and abusive filers.

What should a creditor do?  Easy:  Don’t Delay!

A creditor should immediately hire a competent Arizona bankruptcy lawyer to exercise its rights in a debtor’s bankruptcy, including filing the necessary motion to lift the automatic stay as soon as possible.  For example, if a landlord-creditor has a tenant-debtor that has not paid rent and filed bankruptcy, the landlord may be able to pursue an eviction against the tenant-debtor if the landlord files a motion to lift the stay in the debtor’s bankruptcy case.

When a creditor files a motion to lift the stay, the debtor has 14 days to object.  If the debtor does not object, then the creditor will automatically get the stay lifted, but it doesn’t go into effect for another 14 days after that!  Now throw in the possibility of the debtor’s Arizona bankruptcy lawyer filing an objection.  This will require the creditor to set a hearing for the judge to make a decision (and the hearing may not be scheduled for another 3 or 4 weeks).  The moral of the story:  the sooner the creditor files the motion, the sooner the creditor will be able to lift the stay and proceed with enforcing its rights.

If a creditor violates the automatic stay and pursues further actions against the debtor without filing the proper motions, the court may sanction the creditor for its wrongful conduct (i.e., require the creditor to pay money damages, attorneys fees and punitive damages).  It will be a very expensive mistake.