How Bankruptcy Prevents Collection Calls

Many clients come to my office after being harassed by collectors trying to force them to make a payment on debt. The disruptive tactics, bad manners and general rudeness of debt collectors is one of the most common complaints that clients make in my consultation appointments. In fact, these nasty debt collection tactics seem to push people into filing bankruptcy more than convince people to pay their debts! Most clients have heard that bankruptcy will stop collection calls, but do not know how this works. This article explains how the US Bankruptcy Code prevents debt collectors from calling once a bankruptcy case is filed.

The filing of a bankruptcy case, under any chapter of the Bankruptcy Code, triggers an injunction against the continuance of any action by any creditor against the debtor or the debtor's property. This injunction is called the "automatic stay."

The automatic stay prohibits 

Beginning or continuing law suits

Collection calls

Repossessions

Foreclosure sales

Garnishment or levies

The automatic stay remains in effect until

a judge lifts the stay at the request of a creditor;  

the debtor gets a discharge; or 

the item of property is no longer property of the estate.  

Anyone who willfully violates the stay in the case of an individual is liable for actual damages caused by the violation and sometimes for punitive damages.  Some courts confine the right to damages to individual debtors and deny damages for stay violations as to corporate debtors.  

If someone violates your bankruptcy automatic stay, you may be able to sue them for damages. Section 362(k) of the U.S. Bankruptcy Code states that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

So what’s a willful violation of a stay? Well, the creditor needs to know - or have reason to know - that you have filed for bankruptcy. They need to take an action to collect against you after that stay is in effect. They don’t need to willfully violate the stay, they need to willfully take the action. That means the creditor needs to mean to send out the collection letter or call you after that creditor knows of the stay.

It is the threat of these lawsuits for violation of the bankruptcy stay that prevent collectors from contacting you once your bankruptcy case is filed. If you have a creditor that is willfully violating your bankruptcy stay, your attorney may be able to seek damages against that creditor.

If you are receiving constant collection calls and would like them to stop, please call the Law Offices of Kristy Hernandez for a free consultation to see if bankruptcy is right for you.