I find that most debtors and creditors alike approach these matters with good intentions, but each sometimes run into trouble, usually due to just not being familiar enough with bankruptcy law.
Of course, if you are a creditor, you should rely on your own attorney for legal advice, but following are some well established legal principals that may help you avoid inadvertently violating the Automatic Stay.
The case begins with filing of a petition by counsel for the debtor. As a creditor, you should receive a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadlines. If you do not receive this notice but are aware of the bankruptcy by any other means, courts expect you to comply with the automatic stay.
The Automatic Stay
The stay is effective against all entities and brings almost all forms of civil legal action against the debtor to an abrupt halt, 11 USC 362(a)(1)-(8), Willford v. Armstrong World Industries, Inc., 715 F.2d 124, 126 (4th Cir. 1983). This means creditors must not telephone, write, issue bills to, harass or otherwise contact the debtor. If you are unsure about what do once you receive a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadlines you should contact your attorney prior to contacting the debtor and perhaps subjecting yourself to penalties.
Parties bringing actions against the debtor have a duty to halt non-bankruptcy court actions, In re. Atkins, 176 B.R. 998 (Bankr. D. Minn. 1994). This means that if you have a state court action pending against someone who is protected by the automatic stay, you must stop that action.
Actions taken in violation of the automatic stay are void as a matter of law, see In Re Schwartz, 954 F.2d 569, 26 C.B.C.2d 649 (9th Cir. 1992) (IRS violation of stay was void, not voidable). Wage and bank garnishments, foreclosure and repossession must halt upon filing of the petition.
Acceptance of payroll deductions after filing violates the automatic stay, Matter of Hellums, 772 F2d 379 (7th Cir. 1985).
A driver's license revocation based on an unpaid accident judgment cannot be continued after discharge, Perez v. Campbell, 402 U.S. 637, 91 S. Ct. 1704 (1971).
Withholding of a student's transcript for non-payment of a discharged debt is prohibited, In re Merchant, 958 F.2d 738 (6th Cir. 1992).
Attorney fees and costs are mandatory for willful violation of the automatic stay and punitive damages are also available, United States v. Ketelson 880 F.2d 990, 993 (8th Cir. 1989).
Section 525 of the Bankruptcy Code protects debtors from a variety of discrimination based on having filed bankruptcy, including employer discrimination under Section 525(b).
When the debtor files bankruptcy, creditors must cease collection efforts. Some creditors ask the debtor to sign a reaffirmation agreement for secured debt. Many creditors simply continue to accept payments from the debtor. If, as a creditor, you prefer having a signed reaffirmation agreement, you should forward it to our office and we will review it and forward it to the client if appropriate. Many courts have held that attempts to take possession of property after bankruptcy are prohibited as long as the debtor is current on payments, In re Parker, 139 F.3rd 668 (9th Cir. 1998).
If, as a creditor you have a question about any of these issues, we encourage you to contact your own attorney.