Bankruptcy law takes priority over all other financial dealings in state court and federal court. The most interesting effect is on debt collectors. Immediately after the bankruptcy filing, debt collectors must stop all efforts to collect money.
The Automatic Stay
The same day the bankruptcy petition is filed, something called the “automatic stay” begins. This is a term used by the bankruptcy law that indicates all proceedings are “stayed” while the petition winds its way through the court system. “Stayed” is another way of saying “Suspended.” Everything relating to your financial world is suspended until the case is over or certain technical exceptions come into play.
The bankruptcy code prohibits anyone from pursuing your money or property after the filing date. All pending activity is frozen in time. That is the gist of the automatic stay and it is the most powerful part of a bankruptcy petition.
Debt Collection Activities Affected by the Automatic Stay
This is a partial list:
- Debt collectors are prohibited from calling you
- Debt collectors cannot send you letters
- Debt collectors cannot sue you, and if they already have, the suit comes to a halt
- Repossessions are prohibited, including cars, furniture, and electronics
When Debt Collectors Ignore the Rules
One common problem is when collection companies ignore the rules. The problem is that most debt collectors don’t care about the law and will openly break the law by continuing to harass you. The bankruptcy law is absolute on this issue – collectors have to stop any and all attempts to contact you. But there are things you or your attorney can do.
Sanctions and Fines Against Collectors that Break the Rules
There are a variety of things the court can do to punish violations of the bankruptcy law:
- Order repossessed items to be given back to you
- Make the collection company pay your attorney fees
- Order payment of any expenses or “damages” you may have suffered
- A variety of fines and sanctions.