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Bankruptcy filing results in automatic stay of all collections

In Florida and all other states, when a consumer files a bankruptcy, a legal order called the automatic stay goes into effect. This court order prohibits creditors from taking further collection actions against the debtor unless by permission of the bankruptcy court. This is an effective remedy that saves homes from the entry of foreclosure judgments and even from pending sheriff's sales.

If a creditor's lawsuit against a borrower is pending when the bankruptcy is filed, all actions will be stayed by the bankruptcy order. This applies to lawsuits on credit card debt or on medical debt. A repossession on a vehicle can be stopped by the automatic stay, and under bankruptcy laws, the vehicle that has already been repossessed may, in some cases, have to be returned to the debtor pending further proceedings in the bankruptcy.

Where a creditor is given notice of the automatic stay, and takes further collection actions against the borrower, the borrower may sue the creditor in the bankruptcy court for violation of the automatic stay. One typical case was recently filed illustrating the rights of individuals who have taken advantage of the federal bankruptcy laws. In that case, a man sued Fifth Third Bank in federal court, alleging that the bank came after him for collection of a debt that he had already discharged in a completed bankruptcy case.

The plaintiff alleged receiving a collection letter from a collector on behalf of the bank. The complaint alleges that the creditor had notice of the bankruptcy. In a typical case, the clerk of the bankruptcy court sends notice to all creditors listed on the filer's bankruptcy schedules. The plaintiff requested actual damages, punitive damages and other damages provided by law. Violation of the automatic stay in Florida and elsewhere does not necessarily result in large recoveries for the plaintiff, but the ability to stop creditors through such means is a valuable aspect of the bankruptcy arsenal of remedies available to a consumer filer.  

Source: cookcountyrecord.com, "Wheaton man says Fifth Third Bank and collection firm sent letter on discharged debt", Louie Torres, June 22, 2017

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