If a debtor is granted an automatic stay in a North Carolina bankruptcy case, creditors must stop all collection activities. This means that they cannot follow through with a lawsuit, garnish wages or take any other action prohibited by the stay. In some cases, inaction on the part of a creditor could result in negative consequences for that party. In one Chapter 7 case, a divorce attorney received a judgment to garnish a client’s wages before she filed for bankruptcy.
When the woman did file, the attorney was asked to put a stop to the wage garnishment. After refusing to do so, the individual was held in contempt for willfully violating an automatic stay. The attorney asserted that he had no legal obligation to comply with the order. However, the bankruptcy court ruled that assets owned by an individual that had not yet been liquidated belonged to the bankruptcy estate.
The debtor’s divorce attorney did not assert any type of ownership of the money, which bolstered the woman’s case in bankruptcy court. Therefore, the court was able to find that a violation occurred, that it occurred willfully and that it resulted in actual financial damages. The woman was awarded $2,400 in legal fees that were accrued to pursue the contempt motion.
Those who file for a personal bankruptcy are typically entitled to an automatic stay of creditor activity. This generally means that they cannot repossess property, garnish wages or file a lawsuit. A creditor that violates the automatic stay may be liable for financial or other damages. Legal counsel may also explain other potential benefits of Chapter 7 such as having most unsecured debt balances discharged in a short period of time.