When a New York resident files a Chapter 7 or Chapter 13 personal bankruptcy, the judge assigned to the case issues what is known as an automatic stay. This is a court order that prevents creditors from taking any further action to collect monies that are owed to them. In addition to putting an end to harassing calls from debt collectors, automatic stays stop foreclosures and vehicle repossessions as well as halt debt-related lawsuits and wage garnishments. Creditors who willfully violate automatic stays act in contempt of court.
While the penalties for contempt of court can be severe, they do not help individuals who have had their vehicles repossessed or continue to suffer daily harassment. Congress addressed this shortcoming in 1984 when it passed the Bankruptcy Amendments and Federal Judgeship Act. The provisions of this law allow individuals to sue creditors that willfully ignore automatic stays and cause injury, loss or damage as a consequence. The awards in these cases are generally limited to compensatory damages, court costs and attorney fees, but punitive damages may be awarded in cases where creditors have acted egregiously.
The discharge injunction
Automatic stays remain in effect until bankruptcy cases are either dismissed or discharged. When bankruptcies are dismissed, creditors may once again pursue unpaid debts. When Chapter 7 or Chapter 13 cases are discharged, automatic stays are converted into discharge injunctions. This permanently prevents creditors from pursuing debts that were included in the bankruptcy.
However, creditors can still seek payments for debts that cannot be included in a bankruptcy case. These obligations are known as nondischargeable debts, and they include past-due taxes, delinquent child support payments, criminal fines and most student loan debt.
Bankruptcy laws are complex, and Chapter 7 and Chapter 13 petitions are often dismissed because individuals seeking to escape unmanageable financial situations do not complete the necessary paperwork or fail to provide supporting documents like tax returns. Attorneys with debt relief experience may explain the process and help their clients to avoid these pitfalls. Attorneys may also take legal action against creditors that disregard automatic stays or discharge injunctions.