Violation of the Automatic Stay in Bankruptcy
The Automatic Stay is the legal process by which a bankruptcy stops a foreclosure sale. Once you file a bankruptcy in federal bankruptcy court you should notify the trustee with your bankruptcy case number and your sale will “automatically” be stopped. This process is known as the Automatic Stay and it applies to bankruptcy under any chapter.
The Automatic Stay requires all collection efforts to immediately cease upon the filing of a voluntary or involuntary bankruptcy petition. If a trustee does not stop a foreclosure sale after being notified of a bankruptcy filing, this is a violation of the automatic stay resulting in statutory damages. The automatic stay is truly “automatic because it takes effect instantly upon the filing of a bankruptcy and is effective even if the trustee (or any creditor) is not aware of your bankruptcy filing.
Any sale of property that violates the automatic stay must be reversed by the court. However these stay violations may be ratified if no proceeding is brought to reverse the act. The lawsuit is brought before the bankruptcy judge to reverse the act and recover damages which is called an Adversary Proceeding.
A borrower may recover statutory damages for violation of the automatic stay if the violation was willful. Even if your trustee was not aware of the automatic stay, their actions will be considered willful if they do not immediately reverse your trustee’s sale and return ownership of your property to you. If the Trustee does not stop the sale the statutory damages will include actual damages, costs, attorney fees, and in some cases punitive damages.
The automatic stay ends when a bankruptcy is closed or dismissed or upon the discharge of the debtor.  When the automatic stay ends the trustee and the lender may be able to resume foreclosure, depending on whether the bankruptcy was dismissed or discharged and what rights the bankruptcy has left them.
A limited exception to the automatic stay may occur in cases where a debtor has abused the bankruptcy court’s jurisdiction by filing multiple “sham” bankruptcies. In instances of serial bankruptcy filing the bankruptcy court may dismiss a case and accompany it with an injunction that prohibits the refiling of a new petition. If the debtor files a subsequent bankruptcy after such an injunctive order by the bankruptcy court, a creditor’s action in violation of the automatic stay may be allowed to stand.