Collecting on a debt after filing bankruptcy is forbidden

Most debt collectors and debt collection law firms understand that when a consumer files for bankruptcy they are protected by something called the bankruptcy automatic stay which means that collecting on a debt after filing for bankruptcy is forbidden.  The automatic stay is found under section 11 U.S.C. 362 (a)(1) of the bankruptcy code and says that almost everyone who is trying to collect on a debt must stop doing so immediately.  If you are involved in a civil lawsuit then the lawsuit must be dismissed or at least stayed until you receive a final discharge order or your bankruptcy case is dismissed.  The responsibility for dismissing a civil law suit generally lies with the party bringing the claims against the debtor.  In a chapter 7 bankruptcy case debtors in most cases receive their discharge order in 90 days from the date of the original bankruptcy filing.  Once the discharge order and creditors have had a chance to object to the debtors bankruptcy filing the discharge becomes final and a debtor is no longer liable for repaying most debts under 11 U.S.C 105(a).

If a creditor continues to collect on a debt then a debtor may file a motion for contempt and even sanctions under section 11 U.S.C. 105 of the bankruptcy code.  Recently I had to deal with this unfortunate situation in which an attorney attempted to manipulate the outcome of a state court case by failing to dismiss a civil case with prejudice, telling the state court judge that the debt was not discharged or that he was working with the bankruptcy court and finally allowing the state court to dismiss the state court civil case “without prejudice.”  If a state court dismisses a case without prejudice this means that the case can be brought again at a future date.  The only reasonable outcome of this case was a dismissal with prejudice which would mean that the case could not be brought again.  In Washington, we are in the 9th circuit which relies on the case of Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) in which the court found that a creditors failure to dismiss a case after a bankruptcy filing was a violation of the automatic stay and discharge order and damages were awarded.  Courts have also recently found that bankruptcy attorneys can recoup attorney fees for their work in enforcing the rules of the bankruptcy code in the case of In re Schwartz-Tallard, No. 12-60052 (9th Cir. Oct. 14, 2015).  The fee’s that may be recouped would be incurred from the date of the violation through any preceding bankruptcy motion to enforce the bankruptcy code and the discharge order.

In the situation that I was dealing with a motion to enforce the automatic stay and discharge order was brought which also sought sanctions against the attorney who refused to dismiss a civil lawsuit with prejudice against my client.  The court in my case sanctioned the attorney and his client for continuing to collect on a debt and ordered the parties to pay my attorney fees for having to bring the motion and also ordered the attorney to pay my clients attorney fee’s that he had paid with regard to the state court case incurred post bankruptcy filing.  Finally the judge ordered the attorney to dismiss the state civil case “with prejudice” within 10 days of issuing the order.  At the end of the day you should not let a creditor get a away with breaking the law and if you think there has been a violation. It would be in your best interest to document the violation and document that you have provided the creditor with notice that they are breaking the rules.  The bankruptcy court in Washington State generally gives a creditor a pass if they are violating a law without knowledge of the bankruptcy filing or the bankruptcy laws.  If you or your bankruptcy attorney send the creditor a certified letter, an e-mail, or some other proof that the creditor has been put on notice that will usually suffice as evidence that a creditor is violating the law willingly and knowingly which opens the door to actual damages and even punitive damages being available in extreme circumstances.  Punitive damages are made to punish a creditor and the more evidence that you have the better your chances of recovering damages in your case.

If you live in Washington State and have filed for bankruptcy and a debt collector won’t stop collecting against you, give Symmes Law Group a call at 206-682-7975 to learn about your options.