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New York must pay for failure to observe bankruptcy’s automatic stay

When a bankruptcy petition is filed, what is known as an “automatic stay” is put in place on the debtor’s bankruptcy estate. A bankruptcy estate is the grouping of a person’s assets that they are put in their bankruptcy filing. The automatic stay prevents creditors from collecting on debts covered under the estate. This is one many protections that bankruptcy offers. If a company or the government violates the automatic stay, then that agency or company can be brought to court and sued by the debtor.

In one case, a man filed for bankruptcy in New York State, and his automatic stay was violated. Just like any other state, New York State collects taxes and can garnish wages. After one man had filed his Chapter 13 bankruptcy, the New York State Department of Taxation and Finance told his employer to stop garnishing his wages on their behalf according to a June 10, 2014 New York Law Journal article. However, the department did not follow through on its request, and during the four subsequent pay periods, the state collected $193.

Although the state gave the man a refund promptly, he still decided to sue them for violating his automatic stay. He wanted to collect for emotional distress. While the judge decided that the man’s emotional distress should not be compensated as it was just related to the bankruptcy as a whole, the judge still ordered that the state pay the man’s legal fees. The fees totaled $13,625. By wrongfully garnishing $193, the state ended up with a large legal bill.

If you are considering filing for bankruptcy, or if you have been the victim of illegal debt collection practices, then you should speak with a qualified attorney. The Fair Debt Collection Practices Act (FDCPA) and bankruptcy laws offers debtors many protections. Jayson Lutzky is a New York lawyer with over 31 years of experience. He has an office in the Bronx and offers free in office consultations. Call 718-329-9500 to set up an appointment, or visit www.MyNewYorkCityLawyer.com to learn more about Mr. Lutzky.

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