Creditors cannot attempt to collect on debts owed to them after you file for bankruptcy protection. Furthermore, creditors who attempt to collect debts after a bankruptcy has been filed can be and often are severely punished by the bankruptcy courts.
The reason creditors cannot continue debt collection efforts is because of the Bankruptcy Code’s “automatic stay.” The automatic stay is a statutory provision that activates IMMEDIATELY upon the filing of a bankruptcy petition. No action is necessary by the debtor or the debtor’s bankruptcy attorney. The automatic stay states that all creditors must stop ANY and ALL efforts to collect on debts that have become part of the bankruptcy. This includes ceasing debt collection letters, stopping harassing phone calls and text messages and withdrawing all lawsuits and garnishments. Creditors cannot claim ignorance since all creditors listed on a bankruptcy petition receive a notice from the bankruptcy court informing them of the bankruptcy and that the automatic stay prevents any continued effort to collect on debts owed.
What Should You Do?
If creditors attempt to collect on debts after you have filed your bankruptcy, the first step is to immediately notify your bankruptcy attorney. Your attorney will then notify the court of the creditor’s violation of the Bankruptcy Code. Your attorney will also send notice to the creditor. Sometimes, that alone is sufficient to cause the creditor to stop violating the automatic stay. If efforts to collect cease, then, often, bankruptcy judges will consider the collection efforts to have been mistaken or inadvertent and no punishment will be issued for violation of the automatic stay.
However, if after notice, a creditor continues collection efforts, then the creditors actions have moved into the “zone” of willful violation of the automatic stay. When the automatic stay is WILLFULLY violated, then courts become serious about punishing creditors (and, sometimes, the attorneys for the creditor too).
A case in point is In re LeGrand, Debtor, Case No. 19-21198-C-7, 612 B.R. 604 (US Bankr. E.D. Cal. 2020). In that case, a creditor called Cavalry SPV I, LLC (“Cavalry”) obtained a $20,791.07 money judgment against Dumace LeGrand here in our California state courts. On February 5, 2019, the attorneys for Cavalry obtained a wage garnishment order allowing Cavalry to deduct about $850 a month from LeGrand’s paychecks. On February 28, 2019, LaGrand filed for bankruptcy.
Because of the automatic stay, the wage garnishments should have stopped immediately. Cavalry’s attorneys should have informed the California state court of the bankruptcy and notified the employer that no further garnishments should be taken.
However, the attorneys did NOT inform the California court or take any steps to stop the garnishments. As the court described the facts in LeGrand, the attorneys merely “closed their file.” LeGrand’s employer honored the wage garnishments twice while LeGrand’s bankruptcy was pending and then several times after discharge. The wage garnishment was not terminated until July 29, 2019.
LeGrand’s attorneys brought the matter to the attention of the court. The court ruled that Cavalry’s attorneys had WILLFULLY violated the automatic stay. The court punished them with contempt of court and ordered them to pay several categories of damages. First, the court awarded LeGrand $5,500 for his attorneys’ fees. Second, LeGrand was given restitution of amounts that were unlawfully garnished which was about $750. Then LeGrand was awarded $3,500 in actual damage for his emotional distress. Finally, and most significantly, given the willfulness of the Cavalry’s behavior and the behavior of its attorneys, the court awarded $25,000 in punitive damages as punishment. The court further held that Cavalry and its lawyers were jointly and severally liable for the judgment in favor of LeGrand. As can be seen, when a creditor violates the automatic stay, punishments can be severe.
Contact Our Experienced Bankruptcy Attorneys Today
For more information or if you think it may be time to file for bankruptcy, contact the Bankruptcy Law Center today. We have the experienced bankruptcy attorneys you need to help evaluate your options. Use our Contact Page or call us at (800) 718-9688 to schedule a consultation.