Automatic Stay and Discharge Violations

The Automatic Stay and Discharge Injunction

If you receive phone calls, statements, or letters trying to collect a debt during or after your bankruptcy filing, please notify our office immediately as you might have a claim against that creditor or debt collector.  You should also keep a record of all phone calls and correspondence that you receive as it may serve as important evidence in a possible lawsuit against that creditor or debt collector.

There are two very important provisions of the Bankruptcy Code that limit the amount of communication and collection activity that a creditor or debt collector is allowed to take against a debtor.  These provisions are the Automatic Stay provisions of 11 U.S.C. § 362 and the Discharge Injunction of 11 U.S.C. § 524. 

Once a bankruptcy petition is filed, the automatic stay provisions of the bankruptcy code operate as a stay of any action to collect or recover a claim that arose before the filing of the petition.  This means that in most bankruptcy cases it is a violation of federal law for a creditor or debt collector to call or mail any correspondence to a debtor in an effort to collect a debt.  All lawsuits and foreclosures also must come to a halt, at least temporarily.  In most cases the automatic stay will remain in place until the debtor receives a discharge of their debt.  A creditor may file a motion with the court to have the automatic stay lifted, but this usually takes at least some time to complete, and interested parties have a right to file an objection.

There are limitations on the automatic stay for debtors who have filed more than one bankruptcy case within the past year.  If a debtor has previously had a case dismissed within the past year of filing a second bankruptcy case then the automatic stay is only in place for 30 days.  If the debtor has had more than one case dismissed or pending in the past year then there is no stay in place at all.  In both these situations the debtor’s attorney would need to file a motion with the court in order for the debtor to receive protection from the stay.  In most of these cases the debtor would need to show the court that there was some type of change of circumstance or that there was some other type of good faith reason for dismissing the previous bankruptcy filing.

Bankruptcy Courts have implied authority to enter an Order of Contempt against creditors who are in violation of the automatic stay and may award damages for willful violations.  Such damages include actual damages, which can include attorney’s fees and emotional distress, along with an award of punitive damages. 

Upon successful completion of their bankruptcy case a debtor usually receives a discharge of their pre-petition debt.  The Discharge Injunction of 11 U.S.C. § 524 now prevents a creditor or debt collector from being able to commence or continue any action to collect a pre-petition debt.  Mortgage holders or other secured creditors are now limited to in rem relief only, and cannot collect from a discharged debtor personally.  This means that they still have a right to take back the collateral such as the home securing the debt, but they cannot go after the debtor personally for any additional funds.  All phone calls, statements, collection letters, and other forms of communication trying to collect pre-petition debt are now prevented by federal law. 

There are certain debts that the Bankruptcy Code has determined to not be dischargeable in bankruptcy.  These debts include, but are not limited to, domestic support obligations such as alimony and child support, certain federal and state taxes, fines to government entities, and instances where the debt was obtained by fraud.

In recent years Bankruptcy Courts have become much less tolerant to creditors who violate the automatic stay or discharge injunction.  As discussed above, bankruptcy courts have the authority to enforce the Automatic Stay provisions of 11 U.S.C. § 362 and the Discharge Injunction of 11 U.S.C. § 524.  If a creditor routinely violates these provisions, a debtor can be awarded damages including punitive damages and attorney’s fees.  In one recent case in this district, it was determined that the violating creditor had to pay $2,000.00 per collection letter.   See In Re: Baltzer, 2014 WL 7149724 (Bankr. M.D. Fla. 2014) (Awarding actual damages against Bayview Loan Servicing, LLC for $2,000.00 per letter along with punitive damages of $112.465.90).