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What Stops a Creditor from Making Me Pay after My Bankruptcy is Finished?

Stop Creditor CallsWHAT IS THE LEGAL BASIS FOR PREVENTING A CREDITOR FROM CHASING ME ONCE THE BANKRUPTCY IS DONE?

This question assumes that you complete your case successfully, that is, you receive a "discharge" of your debts. You'll know this because the bankruptcy court will send you a formal court order called Discharge of Debtor from the bankruptcy court. All of your creditors will also receive a copy of this court order.

The core of this order states that "IT IS ORDERED: The debtor is granted a discharge . . . ." You can see this in the official discharge order form in a Chapter 7 case, and in a Chapter 13 case.

Once you are granted the discharge, Section 524(a)(2) of the Bankruptcy Code kicks in, stating that a

discharge in a case [under the Bankruptcy Code] . . . operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor . . . .

The effect of this injunction is nicely put into plain English in the "Explanation of Bankruptcy Discharge" in the back of the Discharge of Debtor order. It states:

Collection of Discharged Debts Prohibited

The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtors. . . . . A creditor who violates this order can be required to pay damages and attorney's fees to the debtor.

DO CREDITORS EVER VIOLATE THE DISCHARGE ORDER OR THE RESULTING INJUNCTION?

On the one hand, most creditors abide by the discharge order and injunction. But it is wise to be on guard against the possibility.

After all, creditors do not always obey the law. One example speaks volumes. A few years ago a major credit card bank, Capital One, was accused by the United States Trustee (an enforcer of bankruptcy laws under the U. S. Department of Justice). After an extensive independent audit, the bank was found to have filed nearly $25 million worth of claims in bankruptcy court representing debts that had already been discharged in previous bankruptcy cases, in clear violation of thousands and thousands of debtors' discharge injunctions. Here is a press release by the U. S. Trustee about this.

Obviously, if a creditor ever approaches you about paying a debt that was discharged in bankruptcy, be sure to immediately inform the attorney who represented you in that case. It's also wise to monitor your credit report after your discharge and periodically after that to make sure that all debts that were included in your bankruptcy case are shown to be discharged and no longer owing.

WHAT HAPPENS IF A CREDITOR ON A DISCHARGED DEBT PERSISTS ON TRYING TO COLLECT?

To be clear, on an individual basis, this is rare. (The Capital One Bank case referred to above was resolved in 2011, and no doubt other banks were paying attention.)

But what if it does happen, for example, if you get sued or garnished on a discharged debt?

As a violation of a court order and statutory injunction, the creditor risks being hit with sanctions for contempt of court. The Bankruptcy Code gives judges the power to "tak[e] any action or mak[e] any determination necessary or appropriate to enforce or implement court orders or rules. . . ." See Section 105(a). So a creditor's violation of the discharge can result in the bankruptcy court punishing the creditor. The extent of punishment would depend on whether the creditor's collection efforts intentionally violated the discharge order, did so recklessly, or negligently; how aggressively it acted; and what damages it caused. A creditor would usually be ordered to pay compensatory damages—to make up for any damages it caused, including your attorney fees for fixing the problem. And it may be ordered to pay punitive damages to teach the creditor a lesson not to violate a discharge ever again.

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