When you successfully discharge a debt in bankruptcy, that should be the last you hear of it. You no longer owe the debt, and you don’t even have to pay taxes on debts forgiven on bankruptcy. But some creditors and collectors don’t follow the rules, either due to sloppy records or perhaps a disregard for the rules altogether.
Case in point: a court-appointed auditor for the U.S. Bankruptcy Court uncovered thousands of instances where Capital One violated the bankruptcy discharge and filed claims for debts that had already been discharged previously in bankruptcy. Capital One denied wrongdoing and says it has since changed its practices. The audit is still ongoing. Even worse, the Wall Street Journal article discussing that audit also described how debt buyers buy bankruptcy debt for pennies on the dollar, and can often double their investment collecting them.
That brings up an important question: Can credit card companies and other creditors try to collect debts you’ve discharged in bankruptcy? The short answer is “no.”
A consumer who files for bankruptcy is protected by the “automatic stay.” The automatic stay stops collection efforts and lawsuits until the debtor receives a discharge. While it is possible for a judge to lift the stay at the creditor’s request, what typically happens is that once you file for bankruptcy, creditor or collector calls and letters cease. If you do receive any communication from creditors or collectors while you are in bankruptcy, you can forward them to your bankruptcy attorney who should be able to put a stop to that activity immediately.
What about after your bankruptcy is completed? If you filed for bankruptcy, and received a discharge of your debts, then any attempts by creditors or collectors to collect on those debts is a “violation of the bankruptcy laws and the Fair Debt Collection Practice Act,” says Massachusetts bankruptcy attorney Jed Berliner. “The former awards actual damages and punitive damages if severe. The latter awards actual damages plus $1,000.00 statutory (automatic) damages. Both award attorney fees.”
If a collector tries to collect a debt that was discharged in bankruptcy, Berliner suggests taking them to small claims court. He says it should be relatively fast and easy. “The clerk-magistrate might need to be expressly told of Fair Debt Collection Practices Act $1,000.00 statutory damages,” he says. (The Fair Debt Collection Practices Act applies to third-party collectors, not creditors collecting their own debts. California has a state law called the Rosenthal Act that is similar and covers creditors as well.)
Don’t want to go the DIY route? You can ask your bankruptcy attorney to help you. If he or she doesn’t take those kinds of cases, talk with a consumer law attorney. “A consumer law attorney will file this case at no cost to you,” says Sukhman Dhami, managing partner of the Dhami Law Firm. That’s because the debt collector pays the attorney’s fees.
Image: Wallula Junction, via Flickr.com