One of the biggest benefits of bankruptcy is that your filing will stop any debt collection against you. This means no more angry phone calls from debt collectors, no more threatening letters, and any lawsuits against you must stop (including pending foreclosure sales). Under the bankruptcy law, this is called the “automatic stay.” There are only a few things you need to know about the automatic stay:
1. The automatic stay begins the moment we file your case. This means that a foreclosure sale at 10:00 doesn’t count if you filed your case at 9:59. It also means that a creditor who calls you minutes after your case has been filed has to stop, even if they haven’t received notice of your filing yet.
2. The stay is in effect until the end of your case, unless a creditor has a good reason. In a Chapter 7 bankruptcy, the stay often lasts until your case is closed. In a Chapter 13 bankruptcy, your case may last for three to five years. The automatic stay remains in effect the entire time.
A creditor may make a motion with the court to lift the stay. This usually happens with a secured debt you’re not paying–the creditor can ask to have the stay lifted in order to foreclose on a mortgage in default, for example. If a creditor does try to lift your stay, your attorney can advise you on whether it’s a good idea to fight the motion and prevent that creditor from being able to collect until the end of your case.
Even though the stay does expire at the end of a Chapter 7 case, that’s usually not a problem for the debtor, since the stay is replaced by the discharge injunction. The discharge injunction is similar to the stay–once a debt is discharged in bankruptcy, a creditor can’t try to collect it ever again.
3. The automatic stay protects you from all creditors, even ones who will still be able to collect when your bankruptcy is finished. If you have tax debts that are nondischargeable, or unpaid student loans, the automatic stay gives you three to four months of breathing room while you figure out your finances. Even if you’re going to owe the debt once the bankruptcy is finished, they can’t bother you while the stay is in place.
4. You may be able to recover money damages for stay violations. The Bankruptcy Code is dead serious about protecting debtors from being bothered by creditors after a case has been filed. If you are damaged by any “willful” violation of the automatic stay, you may recover actual damages, including costs and attorney’s fees, and, sometimes even punitive damages.
In general, if you’re getting collection calls in bankruptcy, we may give them one free pass–we remind the creditor that you filed a case and warn them not to contact you again. If they’re brave enough (read: stupid enough) to continue giving you hassle, we can sue them for damages. Any damages that you win are not considered part of the bankruptcy estate and don’t need to be turned over to the trustee, meaning they’re your down payment toward your fresh start.
If the agency calling you is a third-party debt collector, they may have also violated the Fair Debt Collection Practices Act (FDCPA), which can result in awards of up to $1,000 statutory damages, actual damages and attorneys fees.
If you’ve filed bankruptcy, notify your attorney any time a creditor contacts you, and be sure to keep a record of what calls you’ve received and from whom. If you’ve been harassed by a creditor after your bankruptcy has been filed, get in touch to discuss your options.