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When a Creditor Violates an Automatic Stay

debt-collector.jpgCalifornia businesses that file for bankruptcy protection are generally granted an automatic stay. In simple terms, an automatic stay provides the filing business with temporary relief from debt collections efforts. This includes relief from creditors that are seeking enforcement a judgment, foreclose on a property or the collection of debt in any other manner. Creditors are legally obligated to put all of those collection efforts on temporary hold. This is extremely useful for the filing company as it gives that business some space to devise a workable restructuring plan. However, creditors do not always abide by the automatic stay. If your company has been granted an automatic stay, and a creditor is continuing to take collection action, you need to speak to an experienced San Jose business bankruptcy lawyer immediately. Your company's legal rights are being violated.

Step 1: Notify the Creditor

In some cases, the violation of the automatic stay is occurring as the result of an error. For example, the creditor may not even be aware of the automatic stay. Of course, they should have been informed and it is possible that their lack of knowledge is due to their own negligence. Still, if a creditor is taking collection action in violation of an automatic stay, you should first inform them of the existence of the stay. At that point, the creditor would have legal duty to put an immediate stop to an illicit debt collection efforts. This action alone may solve the problem. Though, if the creditor continues to take collection action, you will need to escalate the issue.

Step 2: Notify the Court

If you notify the creditor, and nothing changes, you should bring the issue to the attention of the bankruptcy court. It is best to do this through your business bankruptcy lawyer. The bankruptcy court has the power to take corrective legal action against the overly aggressive creditor. In some cases, the court may sanction or fine the violating creditor. You must take swift action to notify the court because if you fail to do so, it could cause significant problems in your bankruptcy case.

Step 3: File a Lawsuit

It may become necessary to file a separate lawsuit outside of the bankruptcy court. This is rare, but in some situations, it will be advisable. All creditors in California are governed by the state's fair debt collection regulations. Creditors that violate these rules must be held fully accountable. By filing a lawsuit, you may be able to not only get injunctive relief to put a stop to the collection efforts, but your company may also be entitled to recover compensation as a result of the bad actions of the violating creditor.

Are Your Business Bankruptcy Rights Being Violated by an Aggressive Creditor?

The dedicated San Jose business bankruptcy attorneys at Diemer, Whitman & Cardosi, LLP can help. To learn more, please do not hesitate to contact our San Jose office today to set up your free case evaluation. We represent companies throughout Silicon Valley, including in Mountain View, Sunnyvale, Cupertino and Redwood City.



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  • Santa Clara County Bar Association | 1917
  • American Inns of Court
  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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