When a bankruptcy is filed, the automatic stay prohibits most efforts to collect a debt (with some important exceptions including criminal proceedings and several others). Collection of garden variety unsecured debts (ie no mortgage, car loan or other collateral) is prohibited. Even attempts to collect by demanding personal payment of a mortgage or secured debt are barred. Until the creditor gets a bankruptcy court order lifting the automatic stay, it cannot collect except by filing a claim in the bankruptcy case.
Once a discharge is entered, the debts that are discharged become uncollectable. Mortgage, auto lenders or leasing companies, and other creditors with collateral rights are free to pursue foreclosure or repossession. Even these are only permitted to make efforts to get back their collateral if the loan is in default. Special rules apply to auto loans. If you reaffirmed a car loan or other debt in the bankruptcy case, or if the debt is non-dischargeable, eg child support, alimony, student loans, most taxes, then collection post-discharge is permitted. Judgment liens on real estate may have to be removed by a motion. Debts which did not exist when the bankruptcy was filed or were not incurred during the bankruptcy process are not affected.
Despite these clear rules, we still see debt collectors trying to collect debts in violation of the automatic stay while the bankruptcy is pending. Continued medical bills, demands to pay back bills as a quid pro quo for continued treatment, billing notices, telephone calls and collection letters may continue even though the creditor got notice of the bankruptcy. Such violations provide a basis for a motion seeking sanctions against the offender, or in some cases, a lawsuit for a violation of the Fair Debt Collection Practices Act.
Once a discharge is entered, we have seen debt collectors violating the discharge order. When this happens, the offender can be sued for contempt of the discharge.
How should one handle these situations? First, document all the calls or collection efforts. Keep copies of all letters or notices. Keep recordings of any telephone messages. If a collector calls, pick up the phone, but be sure to demand the name of the person and company calling. Ask for a telephone number and extension “in case we get disconnected”. Politely verify exactly what debt they are calling about and the balance owed. Ask them specifically what they want you to do (you are looking for a demand for payment). Ask for an address to send payment or any letters etc. Do not give them any information at all about where you live, work etc. Write down all the information you get this way. Once you have this information, you want to tell them clearly that you are in a bankruptcy or have gotten a bankruptcy discharge, with the bankruptcy case number. Specifically ask them to “correct your records to show this”. Ask them to verify that they have done this. If there is any abusive language or threats write these down (“excuse me, let me see if I have this right…you are threatening me with [whatever it is].
Once they know that there is a bankruptcy or bankruptcy discharge, tell them that any attempt to collect the debt is illegal and violates your rights under federal law. Demand that they stop. If you have a bankruptcy attorney, refer them to that attorney. If not, you should consider getting one.
At a minimum, write down everything and keep a log. One strategy that can be used is to record the call, BUT you must TELL THE CALLER RIGHT AWAY THAT YOU ARE DOING SO. Recording telephone calls without notice is illegal in many states. If your caller is calling from California, it is a crime.
If you receive a collection demand, you should call or fax notice about your bankruptcy and include a demand to stop collection efforts.
While a single violation is illegal, we generally give collectors at least one “bite at the apple”. (Usually the creditor has gotten the court notice of a bankruptcy already) Once a collector continues illegal efforts to get you to pay personally after your notice of a bankruptcy, it is time for legal action.
In these situations, it is wise to get proper legal advice.