Bankruptcy Law: Violation of the Discharge Injunction
Law Prohibits Creditors from Collecting Debt
When a person files bankruptcy either chapter 7 or chapter 13, upon completion of the case, all debts are discharged, erased, wiped out forever. This is called an order of discharge. Under federal bankruptcy law no creditor that has been discharged can do anything to collect a debt, the creditors are even prohibited from contacting the debtor in anyway related to the debt. The creditors are also prohibited from filing lawsuits, turning the discharged debt over to collection agencies, and placing further bad marks on the debtor’s credit report.
Exceptions to Prohibition After Bankruptcy Discharge
Now there are some very narrow exceptions to this rule. Such as a surrendered home or other real property. Often times the creditor has to proceed to foreclosure in order to wipe out other debts related to the house- i.e. mechanics liens, tax liens, etc. In such a case the creditor is required by federal law to send notices to the debtor regarding the progress of the foreclosure. However, the creditor is not allowed to attempt to collect the debt from the discharged debtor through the foreclosure process – only provide required notices. Most creditors will put disclaimer language within the notices that advise the debtor that if he or she has filed bankruptcy this is not an attempt to collect a debt.
Violations of Bankruptcy Discharge Injunction – The Remedy
There are times when a creditor does not play fair and violates the discharge injunction set out in the bankruptcy code. When this happens, the creditor needs to be taken before the bankruptcy court for sanctions. Unfortunately the United States Congress did not provide a private cause of action for violations of the discharge injunction. An offended bankruptcy debtor can not sue the creditor in US District or State Court, such a violation must be handled through the contempt of court or sanction process. The court may order reimbursement of the debtor’s expenses, like attorney fess, and may order the creditor to pay a “fine” into the hands of the Court Clerk. Although a private cause of action would provide even more strength to a debtor’s case, typically the threat of contempt of court or sanctions is enough to stop a creditor from continuing to violate the law. But, there are times when a creditor fails to heed the warning and continue to utilize bad collection practices in violation of the bankruptcy discharge injunction. At Purple Law Firm we have actually seen this happen with a creditor which has resulted in the filing of five (5) motions for sanctions for violation of the discharge in junction – this is a rare situation.
If you have completed bankruptcy and have been discharged report any collection activity from the involved creditors to a bankruptcy attorney. The lawyer will review the situation and determine if sanctions should be pursued for the creditor’s violation of the discharge injunction.