Chapter 7 bankruptcy, under consumer bankruptcy law, is when a debtor agrees to liquidate assets. In exchange for surrendering assets, rights are conferred to the applicant. These include an automatic stay on the actions of creditors.
What’s covered under the automatic stay?
There are several actions that become illegal when an automatic stay goes into effect:
- Continuing existing legal action or instigating new legal action against the applicant
- Tacking liens onto property owned by the applicant
- Seizing any assets other than non-exempt assets
- Garnishing wages or other income
- Shutting off critical utilities, such as running water or electricity
- Initiating foreclosure proceedings
What happens if a creditor violates the automatic stay?
Although it’s very likely that creditors involved are aware of what they aren’t allowed to do, some creditors may still try to get around the rules. Often, creditors try to get away with daily phone calls and debt collection letters as well as continue legal action to recoup debts.
Keep in mind that creditors are notified via US Mail that you’re filing for Chapter 7 bankruptcy. That means there may be a few days’ lag period between when you’re protected and when creditors could reasonably know that you are. If you receive communications, promptly notify the creditor you are now covered under the automatic stay.
Record communications with creditors during this period and retain collection letters. If a creditor fails to honor your court-granted protections, you may require these as evidence.
When do you need a lawyer to handle aggressive creditors?
Before retaining an attorney, ensure that creditors have been notified of your protected status. If you have given notice and still receive prohibited communications, an attorney may be able to recover damages caused by overzealous creditors.