Many people who file bankruptcy do so to seek relief from their debts. This is a given. However, there are other benefits to filing for bankruptcy that in many cases far outweigh the simple aspect of discharging unsecured debt. Perhaps the most significant of these benefits is the enactment of the automatic stay, pursuant to 11 U.S.C. § 362(a).
What this law does is effectively stops all attempts to collect on debts incurred by a consumer or business prior to filing of the bankruptcy. As an analogy to the world famous board game Monopoly, imagine a giant stop sign being held up to all of your creditors and telling them stop, do not pass go to not collect $200. This is the law that tells your creditors that they can not continue to harass you by filing law suits, continuing collection attempts or even placing those annoying phone calls and sending threatening letters.
This law is so important and so powerful that it is the number one strategy to stop foreclosures. If you have a foreclosure scheduled for 9:00 AM tomorrow morning and you were to file a bankruptcy case at 8:55 AM tomorrow morning, then by the letter of the law, the foreclosure sale can not proceed. Now of course, it may not be practical to stop a foreclosure sale with 5 minutes notice, unless you have a person at the sale to inform the auctioneer. However, so long as your case is filed, and you provide proof of the bankruptcy filing, and case number to the creditor or their law firm conducing the sale, the creditor could be heavily sanctioned for violating the automatic stay.
In other situations, the stay can be very powerful in that it stops creditors from taking possession of any of your money, through a wage garnishment or bank account attachment. Even if the Creditor takes money from your pay check due to a garnishment order, they must return it to you. Should the creditor fail to give you back your money in a timely manner, they will be potentially liable for payment to you of actual damages, including cost and attorney fees and possibly punitive damages should a showing of an intentional violation be found. See McMullen v. Sevigny (386 F.3d 320, 330 (2004)) citing 11 USC s.362 (h). Under the Bankruptcy Code § 362(h), a violation will be found “willful” if the creditor’s conduct was intentional (as distinguished from inadvertent), and committed with knowledge of the pendency of the bankruptcy case. See Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265, 268-69 (1st Cir. 1999). Even if the Creditor claims that its violation was unintentional, a creditor that commits a technical violation of the automatic stay, due to lack of notice, has an affirmative duty to remedy the violation as soon as practicable after acquiring actual notice of the stay. See In re Will, 303 B.R. 357, (Bankr. N.D. Ill. 2003).
What this all means in plain simple English is that the automatic stay shifts the power from your creditors back to you with respect to your assets and property.