What To Do If A Creditor Violates The Automatic Stay

The automatic stay goes into effect as soon as your bankruptcy petition has been filed with the court and a case-number assigned to your case. The automatic stay prohibits creditors from trying to collect a debt from you. More on that here. 

Creditors and their attorneys know that the bankruptcy court can order them to pay sanctions to the bankruptcy filer if they violate the automatic stay. From a practical point of view, there are two “types” of violations of the automatic stay that a filer deals with: (1) calls and/or debt collection letters, and (2) continuation of legal action, such as a pending lawsuit, garnishment, foreclosure or repossession. 

What to do if you receive a collection call after filing your case:

The bankruptcy court notifies your creditors via U.S. Mail, so there is a few days between the date your case is filed and the date the creditor gets Form 309A from the court. That’s when most post-bankruptcy calls happen because the creditor does not yet know that the automatic stay has taken effect. 

Answer the phone and tell the person you’re speaking to that you have filed for bankruptcy protection. Be ready to provide the person your bankruptcy case number and ask for the person’s name. Jot down the creditor, name of the person that called, date and time of the call and keep that piece of paper handy.

Most times, this is all that is needed to stop future calls. At this point the creditor has actual knowledge that the automatic stay protects you, even though they haven’t received the official court notice yet. The good news is, actual knowledge is all that’s needed. Once the creditor knows about your case, they know. Anything after that is an intentional violation of the stay.

What to do if you receive a collection letter after filing your case:

1. Check your Schedules E/F to make sure the debt is listed. If it’s a secured debt, like a car loan or mortgage, check your Schedule D.

2. Check your creditor matrix to make sure the address for the creditor is listed correctly. 

3. Check the calendar to see how long it’s been since your case was filed.

If the creditor (and if they have one, their attorney) is properly listed on your creditor matrix and it’s been less than 2 weeks since your case was filed, chances are this was mailed out before the creditor received the court notice. Note the date you received the letter on the envelope and put it with the rest of your bankruptcy documents. Chances are, you’ll never need to do anything with it again. But, if the creditor continues to violate your rights, this first letter may just end up being your Exhibit A in court. 

Car loans, mortgages and other secured debts

You should be aware that state law generally requires creditors who hold a secured debt, like a car loan or mortgage, to send regular statements and notices about the debt. So, whether you’re keeping or surrendering the property that is securing the debt, expect to continue to receive correspondence from the lender. 

Since these notices are legally required and their primary purpose is not to get you to pay the debt but rather to inform you of what’s going on with it, they are not a stay violation. Carefully review what you received - chances are you’ll see a phrase like “this is not an attempt to collect a debt” on the document. 

What if it’s been a few weeks since I filed?

If it’s been a few weeks since you filed the case and a creditor is still sending you collection notices even though they were listed as a creditor in your case, it’s time to take action to protect yourself. 

Call the creditor and remind them that you’re in bankruptcy. Take detailed notes on when you called, who you spoke to, and what they said when you asked them to stop their collection attempts. 

If it seems like this was a sincere mistake on their part and they are in fact trying to update their system to stop sending you collection notices, then you can leave it at that. Remember, they can’t actually do anything, so why get upset about a bill you received in the mail. If they’re actively telling you that they won’t abide by the automatic stay and continue to attempt to collect a debt from you, it may be time to speak to a bankruptcy lawyer about bringing an action against them. 

What to do if you a creditor violates the stay by continuing to garnish your wages

When your case is first filed, make sure you take these 6 steps to stop the garnishment and stay on top of the creditor’s attorney until you have confirmation from your payroll department that the garnishment has been terminated. You can learn more on what to expect and how to handle it here. 

If the wage garnishment continues, or a creditor refuses to release a levy on your bank account or repossesses a car, you may need to get the court involved. At this point, it’s more than annoying letters - or even phone calls - it’s actual money or property taken from you in violation of federal law. 

Taking a creditor to court for a stay violation

If you’re damaged by a creditors willful violation of the automatic stay, you can ask the court to punish them by ordering them to pay sanctions. You can recover your actual damages (such as a return of funds that were garnished from you post-petition) as well as costs and attorney fees if you have an attorney helping you with it. If you don’t, start by calling the clerk’s office to find out how this is handled in your district. Since you are able to recover attorney fees from the offending creditor, it may be worth contacting a bankruptcy attorney to get help with this process. Check if your court has a self-help center for pro se filers that may provide you with a referral for assistance with the stay violation matter.