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Creditor inaction may constitute violation of automatic stay

On Behalf of | Mar 2, 2020 | Chapter 7 |

When a person files a petition for bankruptcy in Ohio, all creditor collection actions must cease. This is because filing for bankruptcy triggers an automatic stay, and creditors who violate it are subject to punishment under the law. Courts are divided on whether or not creditors must unwind ongoing collections cases when the debtor files for bankruptcy. Some say inaction on the part of the creditor, leaving the pending case wherever it happens to be, is fine. Others, including a recent bankruptcy court decision, have said the creditor must make affirmative efforts to prevent ongoing collections.

In order for a party to prove that the automatic stay has been violated, he or she must show that a violation happened, that it was willful and that it caused damages. The automatic stay prohibits any act to exercise control over the bankruptcy estate’s property as well as any act to take possession of estate property. In the recent case, from a Virginia bankruptcy court, a creditor of the petitioner had secured a judgment and $1,000 had been garnished from the debtor’s bank account, but not yet liquidated.

The bankruptcy court ruled that the money was part of the bankruptcy estate because it had not been liquidated by the time the petition was filed. The creditor’s taking possession of the money was therefore in violation of the automatic stay.

People in Ohio who are struggling to pay down their debts might want to schedule a consultation with an attorney. An attorney who has experience practicing bankruptcy law might be able to help by examining the facts of the case and identifying assets that are exempt from the bankruptcy and unreachable by creditors. In some cases, a person may be able to have many debts discharged in Chapter 7 bankruptcy and still keep his or her home, car, tools of the trade or other assets. An attorney might help the client complete pre-bankruptcy counseling or attend the meeting of creditors for the client.

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