How To Protect Your Business After Violating an Automatic Stay

An automatic stay is imposed by the court when someone in the United States files for bankruptcy.If you have a client or customer who files for bankruptcy, your contact with them may be considered a violation of the stay.Attempt to negotiate a settlement with the debtor so you don't have to go to court is a way to protect your business after violating an automatic stay.

Step 1: You can find out what happened.

You need to know when and how the debtor was contacted before you can respond to the motion for sanctions.Check the allegations against your own company records when you read the debtor's motion for sanctions.Give the debtor the benefit of the doubt at this point.If everything they've said is true, you can figure out how to mitigate the damage to your business.If the debtor is a client or customer of yours, look over their account and review their payment history with your company.It's tempting to reach out to the debtor yourself if you know them personally.When they've already filed a motion for sanctions against you, this is not a good idea.

Step 2: Don't hesitate to consult an attorney.

If you've been served with a motion for sanctions, you need to talk to an experienced bankruptcy attorney about what you can do.If you have a regular business attorney, you might want to ask them for recommendations.They may know of an attorney who can help you with this situation.You need an attorney who practices in the same jurisdiction where your client or customer has filed their motion and who has experience representing businesses that have been accused of violating an automatic stay.An attorney with experience representing businesses that file for bankruptcy may not have the experience to defend against an automatic stay from the creditor's side.

Step 3: Return seized property as soon as possible.

If you seized property that was pledged as a security for the debt, you have to return it to the debtor.If the court concludes that you did violate the stay, your act is void.Even if no physical property was seized, you will want to withdraw any lawsuits you have filed against the debtor.You can send a signal to the debtor that you are willing to make things right by taking this proactive step.If you have to come into contact with the debtor to reverse an action, you may want to use your attorney.

Step 4: Attempt to negotiate a solution.

You might think you have a strong defense to the allegations.Negotiating to resolve the situation can save you a lot of money.Valuable time and resources are saved by you.Call the debtor's attorney and arrange a meeting to discuss a settlement.It's important to remember that going to court to defend your business may cost you more money and time than you could negotiate.After violating the automatic stay of a client or customer in bankruptcy, your attorney will work with you to build a settlement strategy that protects your business.If the debt is included in the bankruptcy, you can offer to forgive it.The motion for sanctions may be dropped by the debtor.You can get away without paying the debtor anything if you play this angle well.This is a good way to protect your business if you think the debt will be discharged.

Step 5: To pay the damages of the debtor.

You may have to pay more than the amount identified by the debtor if the motion goes before a judge.The problem may be solved if you offer to pay the full amount.If a sanctions order is entered against you in court, this strategy will attempt to minimize sanctions and preserve your business's reputation.If you are ordered to pay court-imposed sanctions for violating an automatic stay, you don't want to put yourself in that situation.You'll have to go to court if the debtor doesn't accept your offer.

Step 6: The debtor's motion needs to be read carefully.

Go over the motion with your attorney to make sure there are no problems.You can use these to your advantage when defending your business.The debtor needs to prove that they filed for bankruptcy, that your business was notified, and that you pursued collection of their debt anyway.You can fight the sanctions on the basis that the debtor has not proved everything necessary to establish a violation, if the motion doesn't prove any of these elements.There are certain types of debt that can't be discharged.The automatic stay does not apply to you if the money you owe is in one of the special categories.Discuss this with the attorney you've hired to represent you in your defense against the motion for sanctions.

Step 7: You can check your records.

For the court to impose sanctions, your violation of the automatic stay must be willful, meaning that you knew about the stay and contacted the debtor anyway.The debtor's case hinges on the fact that you had notice of their bankruptcy.Certain kinds of contact do not violate an automatic stay.If you sent a letter to the debtor asking if they would be willing to reaffirm their debt to you instead of including it in the bankruptcy, you might have succeeded.If the letter does not include threatening or high-pressure language, it will not violate the automatic stay.If you can, refer to your own records to confirm the allegations in the motion for sanctions.If the debtor claims that you sent five emails of the "Final Notice" type, you should check your business records for copies of these emails.

Step 8: Speak to your employees.

If the debtor claims that they were contacted directly over the phone or in person, it is crucial that you identify the employee who spoke to them.You have to find out what they did and why.This is not an excuse you can use to get out of sanctions if one of your employees said they were unaware that the person had filed for bankruptcy.The judge can decide not to impose punitive damages.It's your job as an employer to make sure your employees know when a client or customer files for bankruptcy.

Step 9: You should appear at the hearing.

If you want to defend against sanctions for violating an automatic stay, you must appear in court and argue your case.The debtor has not proven the essential elements of an automatic stay violation.A violation of an automatic stay is not usually a defense against a good-faith mistake.The debtor's case may have other weaknesses that you can exploit.If you send a final notice to collect the debt before the debtor files for bankruptcy, you may be able to avoid sanctions.Even though you had notice of the debtor's bankruptcy, the letter in question was sent before you knew anything.If you appear in court, you are trying to avoid being hit with more than the actual damages incurred by the debtor as a result of your violation.A good-faith defense can help you.The arguments include that the employee who contacted the debtor did not know about the bankruptcy, or that you honestly believed the communication you made wasn't a violation of the automatic stay.

Step 10: Do not contact people who have filed for bankruptcy.

It may seem obvious, but if a client or customer files for bankruptcy, you should stop all contact with them.Some types of contact do not violate automatic stays.A simple statement of a customer's account that is not a demand for payment may not violate an automatic stay.Similarly, you can send a client or customer who has filed for bankruptcy a letter asking them to reconsider their debt to you.Direct these communications to the debtor's attorney if you're thinking about doing them.Don't try to talk to the debtor on the phone.

Step 11: All employees should be notified of the policy.

It's not enough to stop contacting a debtor.Employees may contact them if they remain on your rolls as a client or customer who owes you money.The fact that an employee was unaware of the bankruptcy is not an excuse for violating an automatic stay.As a business owner, you are responsible for notifying your employees and controlling their actions.The automatic stay and the basics of the bankruptcy process need to be understood by your employees.Help them understand that an automatic stay protects them from harassment as well as protects your business.If you respect an automatic stay, your business will be treated the same as all of the other creditor's.Aggressive creditors could push their way to the front of the line if there was an automatic stay.

Step 12: There are systems in place to stop computer-generated notices.

Payment reminders and past due notices may be generated by the billing software your company uses.Many businesses have tried to defend themselves against a motion for sanctions by arguing that they didn't personally contact the debtor, but that their email or letter was automatically generated by a computer system.The judges took a dim view of this argument.You're responsible for controlling all aspects of your business regardless of how a notice is generated.If you receive a notice that a client or customer has filed for bankruptcy, remove their contact information from any programs that generate automatic notices.

Step 13: Where appropriate, seek relief from a stay.

There are some situations in which you can get relief from a stay if your client or customer files for bankruptcy.To get relief from a stay, file a motion with the bankruptcy court where the client or customer filed their petition.The reasons you are entitled to relief from the stay will be discussed in your motion.Suppose you have a contract with a client or customer who has filed for bankruptcy, and you want to modify it.The automatic stay may be violated by your proposed modification.You can file a motion for relief and explain to the court why you want to modify the contract.There are a lot of situations in which you could get relief from the automatic stay.If you believe you are entitled to relief from the stay, you should talk to an experienced bankruptcy attorney.

Step 14: Security agreements should be negotiated with new clients or customers.

Don't offer new clients or customers credit in the future.Deposits or advance payments are required from anyone with whom you do not have an established relationship.You can check the credit report for each new client.It is possible to set a high threshold score, requiring payment in advance or a significant deposit for anyone whose credit score falls below that threshold.It's possible to avoid violating an automatic stay by requiring clients or customers to pledge something.If a client or customer files for bankruptcy, a secured sales agreement won't guarantee you'll be paid.When the debtor's estate is assessed, you'll be at the front of the line.