Automatic Stay Violations: Consumer Rights and Remedies

The decision to file for bankruptcy is often reached after months or even years of mounting financial pressure. The moment your case is filed is supposed to bring a sense of profound relief—a legal shield, known as the automatic stay, descends to protect you from the constant barrage of creditor demands. But what happens when a creditor ignores that shield? What happens when the collection calls continue, a wage garnishment proceeds, or a repossession truck shows up in your driveway? These are not just inconveniences; they are potential violations of federal law, and you have specific rights and remedies.

What is the Automatic Stay in Bankruptcy?

The automatic stay is a legal injunction that goes into effect the instant a bankruptcy petition is filed with the court. It is one of the most immediate and significant protections offered by the U.S. Bankruptcy Code. The primary purpose of the stay is to provide the debtor with a “breathing room”—a temporary pause from all collection activities, giving them time to work through the bankruptcy process without the constant pressure of creditor harassment.

This powerful protection applies to almost all creditors, whether they have received formal notice of the filing or not. It commands them to freeze all collection efforts. Specifically, the automatic stay halts actions such as:

• Lawsuits and Judgments: It stops creditors from starting new lawsuits or continuing existing ones against you.
• Wage Garnishments: It immediately stops employers from withholding money from your paycheck for most debts.
• Repossessions: It prevents a creditor from taking your vehicle, furniture, or other secured property.
• Foreclosures: It temporarily halts the foreclosure process on your home.
• Collection Communications: It prohibits creditors from calling you, sending letters, or emailing you to demand payment.
• Bank Levies: It stops creditors from seizing funds from your bank accounts.
• Utility Disconnections: It can prevent a utility company from shutting off your service due to past-due bills.

What Actions Constitute a Violation of the Automatic Stay?

A violation occurs when any creditor or collection agent takes a prohibited action against you or your property after your bankruptcy case has been filed. Because the stay is broad, the list of potential violations is extensive. Any attempt to collect a pre-bankruptcy debt can qualify.

Common examples of automatic stay violations include:

• Continuing to make collection calls or send demand letters.
• Proceeding with a scheduled foreclosure sale.
• Repossessing a car, even if the payments are behind.
• Filing a new lawsuit on a debt that existed before the bankruptcy filing.
• Continuing to garnish your wages for a pre-bankruptcy judgment.
• Placing a new lien on your property.
• Freezing your bank account without specific court permission.
• Contacting your friends, family, or employer about your debt.
• Threatening any of the above actions to intimidate you into paying.
• Offsetting a pre-bankruptcy debt with funds in your bank account (a “setoff”).

Are There Any Exceptions to the Automatic Stay?

While the automatic stay is incredibly broad, it is not absolute. The Bankruptcy Code carves out specific exceptions for certain legal actions that are allowed to proceed even after a bankruptcy case is filed. Recognizing these exceptions is important to know when a creditor’s action is permissible.

The most common exceptions include:

• Criminal Proceedings: The stay does not stop criminal prosecutions, such as for fraud or a DUI.
• Certain Family Law Obligations: Actions to establish paternity or to establish or modify an order for child support or alimony are not stopped. However, the stay does prevent actions to collect support payments from property of the bankruptcy estate.
• Tax Matters: The stay does not prevent a government agency from conducting a tax audit, issuing a notice of tax deficiency, or demanding the filing of tax returns.
• Pension Loan Repayments: You can continue making payments on loans taken from certain types of pension or retirement accounts through payroll deductions.
• Evictions: If your landlord obtained a judgment for possession of your rental property before you filed for bankruptcy, they may be able to proceed with the eviction.

What is the Difference Between a Willful and an Inadvertent Violation?

For a debtor to recover damages, a court must typically find that the creditor’s violation was “willful.” This distinction is a key element in these disputes.

• Inadvertent Violation: This is an unintentional mistake. For example, a large national bank’s automated billing system might send a statement after a bankruptcy filing but before the account has been manually updated. If a creditor commits an inadvertent violation, they have a legal duty to correct the mistake immediately upon being notified of the bankruptcy. This means returning repossessed property, releasing a bank levy, or stopping a garnishment.
• Willful Violation: A violation is considered willful if two conditions are met: (1) the creditor was aware of the bankruptcy filing, and (2) the creditor intentionally took an action that violated the stay. The creditor does not need to have intended to violate the law specifically; they only need to have intended the action (like making the phone call or repossessing the car) while knowing the stay was in effect.

How Do I Prove a Creditor Knew About My Bankruptcy Filing?

To establish a willful violation, you must be able to show that the creditor had notice of your bankruptcy case. The burden of proof rests with you and your attorney. Fortunately, there are several ways to demonstrate that a creditor was aware of the stay.

Proof of notice can be established through:

• Official Court Notice: The bankruptcy court clerk sends a formal notice of your filing to all creditors listed in your petition. This is the strongest form of proof.
• Direct Notification: You or your attorney can provide direct notice to a creditor. This is often done via certified mail, fax, or email to create a documented record.
• Actual Knowledge: Even without formal notice, if you can prove the creditor had “actual knowledge,” it is sufficient. This could be a recorded phone call where you provided your case number, notes from a conversation, or an email exchange with a collection agent.

What Steps Should I Take if a Creditor Violates the Stay?

If you believe a creditor is violating the automatic stay, how you respond can have a significant impact on your ability to seek a remedy. Taking calm, methodical steps is essential.

Do Not Argue or Pay. Avoid getting into a prolonged argument with a collector. Do not agree to make a payment to get them to stop.

Inform Them of Your Filing. Calmly and clearly state that you have filed for bankruptcy protection. Provide them with your full name, the date you filed, and the case number if you have it. Note the name of the person you spoke with and the date and time of the call.

Document Everything. Evidence is the foundation of a successful motion for sanctions. You must meticulously document every violation.

• Keep all mail: Save every letter, notice, and statement you receive. Keep the envelopes, as the postmark date is valuable evidence.
• Save all digital messages: Do not delete voicemails, emails, or text messages from creditors. Take screenshots.
• Log all phone calls: Write down the date, time, incoming phone number, and the name of the representative you spoke with. Summarize what was said during the conversation.

Contact Your Bankruptcy Attorney Immediately. Do not try to handle this alone. A stay violation is a serious legal matter. Provide your attorney with all the documentation you have gathered. They will assess the situation and advise you on the best course of action.

What Are the Potential Remedies for an Automatic Stay Violation in Alabama?

Section 362(k) of the Bankruptcy Code gives debtors a powerful tool to fight back. It states that an individual injured by any willful violation of the automatic stay “shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”

The remedies a bankruptcy court can award include:

• Actual Damages: This is compensation for any real financial harm you suffered because of the violation. Examples include lost wages from a wrongful garnishment, overdraft fees from a frozen bank account, the cost of renting a car after a wrongful repossession, and other direct monetary losses.
• Emotional Distress Damages: Courts in Alabama and across the country have recognized that creditor harassment can cause significant emotional harm. You may be able to receive compensation for anxiety, sleeplessness, and emotional distress caused by the creditor’s illegal actions.
• Punitive Damages: These are damages designed not to compensate the debtor, but to punish the creditor for particularly egregious behavior and deter them and others from similar conduct in the future. Punitive damages are typically reserved for cases involving repeated violations, malicious conduct, or a creditor’s systemic disregard for the bankruptcy process.
• Attorney’s Fees and Costs: The law requires the violating creditor to pay the reasonable attorney’s fees you incurred in stopping the violation and bringing the matter before the court. This provision ensures you can afford to enforce your rights without further financial burden.

How is an Automatic Stay Violation Addressed in Court?

Enforcing your rights under the automatic stay requires taking formal legal action. Your attorney will file a “Motion for Sanctions” or a “Motion for Contempt” with the Alabama bankruptcy court overseeing your case.

This motion is a formal legal document that:

• Identifies the creditor who violated the stay.
• Describes the specific actions that constituted the violation.
• Presents the evidence proving the creditor had notice of the bankruptcy and acted willfully.
• Details the damages you have suffered as a result.
• Asks the court to order the creditor to pay actual damages, emotional distress damages, punitive damages, and your attorney’s fees.

After the motion is filed, the court will schedule a hearing. At the hearing, your attorney will present your case, and the creditor will have an opportunity to defend its actions. The bankruptcy judge will then review the evidence and issue a ruling.

The Role of Your Attorney in Protecting Your Rights

Navigating a potential stay violation requires a detailed knowledge of the Bankruptcy Code and local court procedures. A seasoned bankruptcy attorney is your most important ally in this fight. An attorney can:

• Ensure all your creditors receive prompt and proper notice of your filing to prevent inadvertent violations.
• Immediately send a cease and desist letter to any creditor who continues collection efforts.
• Gather and preserve the evidence needed to build a strong case for a willful violation.
• Draft and file a persuasive Motion for Sanctions with the court.
• Skillfully represent you at the court hearing to advocate for the maximum compensation available.

Holding Creditors Accountable in Alabama: Contact Padgett & Robertson

The automatic stay is a cornerstone of the bankruptcy process, designed to give you the peace and stability needed to achieve a financial fresh start. When a creditor ignores this fundamental protection, they are not just breaking a rule—they are violating your rights. You do not have to tolerate continued harassment or illegal collection actions.

If you are facing a potential automatic stay violation, act quickly to protect yourself. Contact the experienced bankruptcy team at Padgett & Robertson at (800) 303-1416 for a confidential consultation. We will review the facts of your situation, explain your legal options, and provide the strong advocacy needed to hold creditors accountable and secure the remedies you deserve.