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Inaction can be as bad as action in a bankruptcy case

On Behalf of | Mar 6, 2020 | Bankruptcy

Kentucky bankruptcies, like those in every other state, place an automatic stay on debts once the case is filed. This means that creditors can take no action to collect these debts while the bankruptcy is pending. In other words, everything is frozen in place from the day that the bankruptcy is filed. In some cases, even those creditors who do absolutely nothing can still end up in trouble with the court.

Collections should be canceled

In one particular case, there was already a wage garnishment underway at the time that the bankruptcy proceeding was filed. The creditor took no action to enforce the garnishment which was already in place. The debtor’s bankruptcy lawyer wrote a letter to the creditor, who was also a lawyer, asking him to stop the wage garnishment. The creditor did nothing, and the debtor’s wages were still garnished.

The bankruptcy court held the creditor in contempt of court, stating that the debtor had an obligation to actually take an affirmative action to stop the wage garnishment. According to the court, this was a willful violation of the automatic stay since the creditors can do nothing to collect on their debts, even if the mechanism was already in place before the bankruptcy was filed.

Bankruptcy court can be confusing

There are many different rules in place that govern the conduct of bankruptcy cases in court. Failure to follow any of these rules can lead to sanctions and penalties against the person violating them. Thus, it may be important to receive the counsel of a bankruptcy attorney in order to make sure that there are no surprises. While the strongest punishments are reserved for willful violators of the automatic stay, even those who inadvertently violate the rules could also face negative consequences. It is better to be informed of the unique rules of this forum than to run the risk of breaking them.