Most creditors understand that bankruptcy means “Stop!” When a bankruptcy case is filed a federal injunction known as the automatic stay goes into place. The automatic stay prevents most collection efforts by debt collectors for debts incurred prior to the bankruptcy filing. This includes phone calls from creditors, letters attempting to collect debt, lawsuits, garnishments, and other types of debt collection activities. Violating the automatic stay may result in sanctions and other costs for the creditor.
On occasion a creditor will violate the automatic stay. This happens for a lot of different reasons. Sometimes creditors have moved to a new office but failed to update information on their client’s credit report, so they did not receive notice of the bankruptcy filing. Sometimes they did get notice of the bankruptcy filing but it didn’t get forwarded to the correct department. In rare instances, the creditor did get notice and chose to disregard it.
It is important that bankruptcy debtors keep track of attempts to collect debt after filing bankruptcy and tell their attorney. Bankruptcy attorneys will usually contact the creditor to tell them about the bankruptcy filing and then follow the phone call with a letter memorializing the conversation. These steps will put an end to most attempts to collect debt in violation of the automatic stay. However, there is a small minority of creditors who willfully violate the stay. In these instances it may be necessary to file a motion for contempt and sanctions against the creditor or even to file an adversary proceeding which is a lawsuit within the bankruptcy court. If the debtor has been keeping good records about who they spoke with at the creditor’s office and when the phone calls were made, then these lawsuits are much more likely to be successful.