When Virginia residents file Chapter 7 or Chapter 13 personal bankruptcy petitions, an injunction known as an automatic stay is issued. This injunction is designed to give individuals the time they need to put their financial affairs in order, and it places strict limits on creditors. While the automatic stay is in force, efforts to repossess assets or garnish paychecks must be abandoned, and attempts to collect unpaid debts must cease. Creditors who willfully ignore these rules may be ordered to pay punitive as well as compensatory damages.
While the automatic stay goes into effect immediately, it can sometimes be two or more weeks before creditors learn about it. This is because debtors are under no obligation to inform their creditors about the stay, and bankruptcy courts make these notifications by mail. However, it may be wise for debtors or their attorneys to notify creditors about a bankruptcy filing and automatic stay when a lawsuit, repossession or foreclosure is pending, and time is of the essence.
Creditors are unlikely to face sanctions for violating automatic stays of which they are unaware, but they will generally be required to return any property that was repossessed while the stay was in effect. Creditors making this kind of mistake may also be ordered to pay the debtor’s legal costs. Most credit card companies, banks and other large creditors have systems in place to identify automatic stays and avoid these issues.
Attorneys with experience in personal bankruptcy cases may suggest that their clients keep their bankruptcy filing information in a convenient place, so they can cite their case numbers when creditors are unaware of an automatic stay. Lawyers could also recommend that their clients keep records of any phone calls or letters they receive after notifying creditors about their Chapter 7 or Chapter 13 petitions.