One thing that happens when a person in Iowa files for Chapter 7 bankruptcy is an automatic stay command to creditors. This means that they must stop pursuing any action against the debtor. However, it is unclear whether this means that the creditor has to act to put a stop to anything already in motion. A bankruptcy court in Virginia ruled that the creditor was obligated to do so, but the U.S. Supreme Court will issue a definitive ruling later in the year.
In the Virginia case, a woman’s debts when she filed for Chapter 7 bankruptcy included money she owed the attorney who had represented her in her divorce. The attorney had moved to garnish her wages, and at the time of the filing, a hearing was scheduled regarding $1,000 that was being held by the state. The $1,000 was listed on her filling as an exemption. Her counsel asked her divorce attorney to take action to stop the wage garnishment, but he argued that he was not obligated to do so.
The Virginia court disagreed and found the attorney to be in contempt of court for a stay violation. To prove this, three factors must be in place. The violation must have happened, it must have been willful, and it must have led to damages.
In general, when a person files for Chapter 7 bankruptcy, the process is fairly straightforward. Creditor disputes such as this one are less common than bankruptcies that are discharged without incident. However, there are other problems that may arise, such as delays because a person filled out a document incorrectly. A bankruptcy filing might also be dismissed for other reasons. An attorney may assist a person in preparing paperwork accurately and submitting it correctly to the bankruptcy court.