For those facing the burden of severe debt, bankruptcy can be a way to hit refresh and gain a new start. In the long-term, bankruptcy can allow debtors to discharge certain debts and restructure others, to make them less of a month to month struggle. At the same time, bankruptcy also offers debtors short-term relief and protection.
This process is intended to give debtors some breathing room and space, particularly when it comes to their most insistent creditors. In particular, filing for Chapter 7 or Chapter 13 bankruptcy offers a protection known as the automatic stay, which is intended to pause collection efforts and contact from pre-bankruptcy creditors.
So, what happens if a creditor continues to contact you once you’ve filed for bankruptcy — and what actions can you take to make things right, and make use of the protections that are owed to you?
The Powers of the Automatic Stay
Filing for bankruptcy offers debtors the protection of the automatic stay, which helps hit “pause” on essentially all collection activity from creditors. Depending on your unique circumstances, this may include lawsuits, wage garnishment, creation and enforcement of new liens, and attempts to repossess collateral for secured loans. Broadly speaking, the automatic stay even bars creditors and debt collectors from making contact by phone or mail.
Now, it’s important to understand that the automatic stay does come with limits and restrictions. Most importantly, it’s key to note that the automatic stay does not typically impede criminal cases, family support obligations, and certain tax obligations. Remember, too, that the automatic stay does not apply to any new debts incurred after the bankruptcy case is filed.
With that said, it’s also important to note that debtors have rights above and beyond the limits of the automatic stay, thanks to state and federal laws including the Fair Debt Collection Practices Act (FDCPA), which places limits on how, when, and why a third party debt collector can make contact with you.
What Happens If a Creditor Attempts to Collect During Bankruptcy?
When you file for Chapter 7 or Chapter 13 bankruptcy, a notice of the automatic stay will be sent to creditors, alerting them to the bankruptcy. At this point, the stay will be in effect, and creditors will be prohibited from making contact and trying to collect.
Creditors may take action to try to lift the stay, generally by filing a motion requesting permission to continue collection efforts. It will be up to the courts to grant or deny this motion, depending on the case presented by the creditor. It’s also important to remember that one of the early steps in the bankruptcy process is a creditor’s meeting, a public event in which you, your bankruptcy trustee, and your creditors will discuss the specifics of your financial situation and the ongoing bankruptcy.
Otherwise, pre-bankruptcy creditors will largely be barred from making contact for the duration of the stay.
Now, with that being said, it is definitely not unheard of for creditors or debt collectors to continue trying to reach out — or even take up collection efforts — after you’ve filed. In many cases, this is simply due to error or negligence; the creditor may be unaware of your bankruptcy, for instance, or may have failed to stop a scheduled call or piece of mail in time.
If you receive contact from a creditor in violation of the automatic stay, don’t hesitate to get in touch with your bankruptcy attorney. Your first step will most likely be to write to them, informing them of the error. At this point, the creditor may stop their outreach, and must correct any violations (for instance, if they garnished wages or repossessed property in violation of the automatic stay).
If the creditor persists in trying to make contact or take additional action, you and your attorney may then decide to go to the bankruptcy court. The courts may take the action of sanctioning the creditor if they determine that the violation of the stay was “willful.” That is, that the automatic stay order was in force, and actually violated; that the creditor was aware of the bankruptcy and did not obey the court order, or failed to correct its actions immediately after learning of the bankruptcy case; or that the creditor acted intentionally against the debtor. The court may assess attorney’s fees and force the creditor to pay a fine.
If the creditor continues making contact or attempting to collect, perhaps even after being sanctioned by the court, then you and your attorney may discuss the possibility of filing a lawsuit against them seeking damages. In addition to the violation of the automatic stay, your attorney may also be able to determine if the creditor has acted in violation of FDCPA, the Fair Credit Reporting Act, or any applicable state laws on fair trade practices or debt collection.
Have Any More Questions About Bankruptcy?
Bankruptcy can offer debtors the well-deserved chance at a fresh start — but there can be no denying that the process can be complex and time-intensive. In many cases, it can help to work with an experienced bankruptcy attorney, at every step of the way. An experienced local bankruptcy lawyer can help you determine if you qualify for bankruptcy; ensure that you are filing for bankruptcy correctly in order to protect your assets to the fullest possible extent; and address any complications or issues as they arise — such as a creditor attempting to collect in violation of the automatic stay.
Feeling intimidated and not sure where to go next? If you’re looking to continue the conversation with experienced bankruptcy attorneys in the Chicagoland area, don’t hesitate to get in touch with the Gunderson Law Firm.
Our attorneys and staff can help to provide you with actual, straightforward answers specific to your situation. No need to search for all the variables and hope you don’t miss any key details — just get in touch, and we can help set you down the right path to the fresh financial start you truly deserve. Our team is well-versed in the many aspects that go into debt and bankruptcy law in Illinois, and we’d be happy to discuss your options and explain the automatic stay and other important concepts in more depth.
At the Gunderson Law Firm, we take all steps possible to protect our clients and their assets immediately and throughout the bankruptcy process, while also offering counseling on realistic ways to avoid serious debt issues in the future. Whether you are a business owner, a wage earner, retired, or otherwise, we can help address your specific situation with strategic plans to help put severe indebtedness behind you so you can enjoy life again. Drop us a line if you’d like to continue the discussion online or in-person.