What Happens If a Creditor Tries to Collect a Debt During My Bankruptcy?

If, after you file for bankruptcy, a creditor continues its collection actions against you, the creditor could be in violation of the bankruptcy's automatic stay. Here's what you can do if a creditor continues to collect a debt in violation of the automatic stay.

What Is Bankruptcy's Automatic Stay?

When you file for bankruptcy, the "automatic stay" prohibits almost all collection activity, including legal action, garnishment, and even contact by phone or mail in an attempt to collect a debt.

While the automatic stay is very broad and applies to nearly every attempt to collect on a pre-bankruptcy debt, there are a few exceptions. For instance, the automatic stay doesn't stop criminal cases, some child support actions, and certain eviction cases. The automatic stay doesn't apply to debts incurred after the bankruptcy case was filed.

It's important to know whether the automatic stay applies to the collection action.

When Collection Violates the Automatic Stay

If an exception to the stay doesn't apply, and the bankruptcy court hasn't terminated or modified the automatic stay order, then a collector's attempt to collect a pre-bankruptcy debt is likely a violation of the automatic stay.

What Should I Do If a Creditor Violates the Automatic Stay?

You have several options if a creditor continues its collection actions against you in violation of the automatic stay.

Tell the Creditor About Your Bankruptcy

Typically, informing the collector of the bankruptcy protection will cause the collector to correct its violation. Many times the collector is unaware of your case (through error or negligence) and will stop collecting and correct its violation. For instance, if a collector garnishes your wages after the bankruptcy case is filed, it must immediately return the money.

Notify the Bankruptcy Court

If the collector doesn't stop and correct its violation, the next step is to notify the bankruptcy court. The court can sanction the collector for violating its automatic stay order if the collection action is "willful." The action is willful if:

• the automatic stay order was in force and was actually violated
• the collector knew of the bankruptcy case and either ignored the court's order or failed to immediately correct its action after learning of the bankruptcy case, and
• the collector intentionally acted.

A violation of the automatic stay doesn't depend upon the collector's intent to violate the stay order, only that the collector intended to start or continue collecting in violation of the order.

Generally, the court can sanction a violation of the automatic stay under its power of contempt (because the creditor violated the court's order). The court can impose fines, assess attorneys' fees, and order the collector to pay damages. Punitive damages aren't available.

File a Lawsuit

If a collector continues to collect violates the automatic stay, it might also be violating other state or federal laws including:

• state unfair trade practice laws
• the federal Fair Debt Collection Practices Act
• state fair debt collection practices laws, or
• the Fair Credit Reporting Act.

To collect penalties or damages under another law, you'll have to file a separate lawsuit.

Talk to a Lawyer

If you have further questions about the automatic stay or want to learn more about filing for bankruptcy, contact a bankruptcy attorney.