Bankruptcy Stops Debt Collectors

screaming-into-phoneBill collectors are hounding me. My phone is constantly ringing, and the mail carrier keeps delivering more nastygrams. Will bankruptcy stop the calls and letters?

As a bankruptcy lawyer, I’ve found that collection harassment is often a major factor in the decision to file for bankruptcy. Many people tell me they receive multiple collection calls on a daily basis. In fact, on more than one occasion, a debt collector has even called a potential client’s cell phone in the middle of a consultation with me.

Stop, in the Name of the Law!

Bankruptcy provides breathing room by requiring most collection efforts to stop immediately once the case is filed. The “automatic stay” provision of the Bankruptcy Code says, as a general rule, that a bankruptcy filing blocks “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.”

Put simply, once you’ve filed for bankruptcy, debt collectors need to back off. If they don’t, they’re breaking the law.

The Consequences of a Stay Violation

The Bankruptcy Code lists three remedies available to people injured by a willful violation of the automatic stay:

  • Actual Damages: The bankruptcy court may compensate the debtor for any financial losses caused by the violation. For example, if a debt collector withdrew a payment from the debtor’s bank account after the bankruptcy filing, the court could order the collector to refund that money.
  • Costs and Attorney Fees: Also, the court may award attorney fees and court costs that were incurred while enforcing automatic stay rights.
  • Punitive Damages: If the violation was egregious, the court may order the violator to pay extra damages as punishment.

For a stay violation to be “willful,” the offending party must have been on notice of the bankruptcy filing. This is one reason why I include collection agencies when listing creditors on my clients’ bankruptcy schedules. It’s hard for a debt collector to claim “we didn’t know” if the Bankruptcy Noticing Center has certified that it sent them a bankruptcy notice.

Matt Conrad is an Indianapolis bankruptcy attorney and the founder of Conrad Legal LLC, which helps people in Central Indiana get out of debt with Chapter 7 and Chapter 13.

Posted in Bankruptcy, Debt Collection Tagged with: