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Why creditors don’t want to violate stay orders

| Mar 5, 2020 | Bankruptcy |

Those who file for bankruptcy in Tennessee or any other state will usually receive an automatic stay from creditor collection activities. In one case, a debtor’s divorce attorney claimed that she owed $10,000 in legal fees that were accrued before the Chapter 7 case was filed. Therefore, he didn’t believe that he had any legal obligation to stop pursuing a judgment against her. However, the bankruptcy court determined that any property that wasn’t liquidated prior to the case being filed still belonged to the bankruptcy estate.

Therefore, he was ordered to stop his pursuit of the funds. By failing to do so, the attorney was held in contempt and ordered to pay $2,400 to the debtor. That was the amount the woman was charged by her legal counsel to pursue the contempt motion. In making its ruling, the court found that the automatic stay had been violated because the creditor tried to exercise control over the debtor’s property.

Three elements must be met before it can be determined that a creditor is in contempt for violating an automatic stay. First, a party must show that a violation occurred and that this violation was willful. Finally, it must be shown that violating the stay resulted in economic harm to the debtor.

Individuals who file for bankruptcy may want to do so with the assistance of an attorney. Legal counsel could help protect a debtor from any efforts to violate an automatic stay. Generally, creditors are only allowed to contact a debtor’s legal representative after they file for bankruptcy protection. In addition to an automatic stay, debtors may also benefit from an ability to renegotiate loan terms or to have unsecured debt balances discharged relatively quickly.