One of the most important benefits of filing for bankruptcy is that it will stop collection calls, letters, and other activities by debt collectors. This includes garnishments, lawsuits, and repossessions. When creditors or collectors do not cease collection efforts, consumers may be able to seek additional recourse in court. This article discusses some of the key protections for debtors who are being harassed over bills included in bankruptcy.
Violation of the Automatic Stay
When any person, business, or other entity files the initial petition for bankruptcy, the bankruptcy court judge enters an automatic stay. This is essentially a “safe harbor” for the debtor to catch their breath and prepare for the rest of the bankruptcy case. During the automatic stay, all collection efforts of any kind are prohibited.
The bankruptcy code provides a private cause of action for an individual injured by any willful violation of the automatic stay. The injured individual is entitled to recover “actual damages,” including court costs and attorney’s fees. An award of actual damages requires a showing of injury or loss stemming from acts in violation of the stay. Some examples of acts that have repeatedly supported an award for actual damages are repossession of a debtor’s vehicle, locking a debtor out of a rented property, filing a lawsuit against a debtor, and continued efforts at the collection of debts owed before filing bankruptcy. Punitive damages are awarded when the creditor’s collection activities are particularly egregious.
Violation of the Discharge Injunction
The final discharge order entered by the bankruptcy court judge is an injunction that releases the debtor from personal liability for specified debts. The discharge is a permanent injunction or order prohibiting the debtor’s creditors from taking any form of collection action on discharged debts, including filing lawsuits, garnishing bank accounts or wages, and other collection efforts with the debtor, such as telephone calls, letters, and personal contacts.
A debtor that is harassed over discharged debts after the entry of the final discharge order can bring a contempt proceeding against the violating creditor. This is an adversary proceeding in the bankruptcy court, either brought as a motion for a contempt order, or an adversary action. The bankruptcy court judge can award an injured individual “actual damages,” including court costs and attorney’s fees. In appropriate cases, the creditor may be required to pay penalties or sanctions.
Fair Debt Collection Practices Act
In most courts, it is possible for a consumer to assert a Fair Debt Collection Practices Act (FDCPA) case, when a creditor attempts to collect a debt that is discharged in bankruptcy. There are many articles about the provisions of the FDCPA, but in general, that federal law prohibits certain collection practices relating to bills that the debtor does not owe. Under the FDCPA, consumers can seek compensatory damages, statutory damages, and attorney fees.
The exception to this is Walls v. Wells Fargo, a federal appellate court opinion from the Ninth Circuit Court of Appeals, which applies as binding precedent in California, Idaho, Montana, Nevada, Oregon, Washington, Alaska, Hawaii and Guam. That case held that the FDCPA was preempted by the bankruptcy code, and that debtors are limited to seeking remedies for violations of the discharge injunction, as discussed above.
