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Stay Letter - Automatic Loan Pays

Answered by: 
Dan Persfull

Question: 
We received a stay letter from our borrower's attorney, and subsequently the notice from the bankruptcy court, informing us of the borrower's decision to file for Chapter 7. For loans, we have a secured consumer loan and an unsecured overdraft line of credit. Since both of these are set up for payments to be deducted automatically (voluntary with the consumer loan but mandatory with the LOC), from the borrower's checking account held with us, are these payments a violation of the stay or can they continue?
Answer: 

Yes they are a violation. Once the borrower filed for protection under bankruptcy protection all previous voluntary payments are voided until you petition the Bankruptcy Court to lift the stay, or there has been a court approved reaffirmation agreement signed. Any payments you have processed after receiving the stay are subject to reclamation. Since it appears you have violated the stay you should talk with your attorney.

First published on BankersOnline.com 1/25/10

First published on 01/25/2010

Filed under: 
Lending
Filed under lending as: 
Bankruptcy
Loans

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