In most cases, when a debtor files for bankruptcy, creditors stop contacting the debtor immediately. Most creditors know that if they attempt to collect against a debtor after the bankruptcy is filed, they could find themselves in serious trouble with the court. Occasionally, a creditor or debt collector just doesn't get it and continues to harass or collect against the debtor. Fortunately, the Bankruptcy Code protects debtors against creditors who violate the rules.
When a debtor files a bankruptcy petition, an injunction called the "automatic stay" ("the stay") goes into place. The stay prohibits creditors from, among other things, taking any action to "collect, assess, or recover" any claim that the creditor had against the debtor before filing. 18 U.S.C. § 362(a)(6); In re Wingard, 382 B.R. 892, 899 (Bankr. W.D.Pa. 2008). All creditors receive a notice from the court informing them of the automatic stay. However, as a practical matter, if a creditor has actual knowledge of the debtor's bankruptcy in some other way, the creditor is presumed to be aware of the automatic stay's restrictions.
If a creditor willfully takes an action that violates the automatic stay, the debtor may recover actual damages, attorney's fees, and costs, and possibly punitive damages. 18 U.S.C. § 362(k)(1). These damages may include compensation for emotional distress if the creditor's actions are serious enough. The court may also sanction the creditor for contempt, including the imposition of fines and even jail time.
For a debtor to obtain damages, the creditor's action must be willful. A creditor's violation is willful when the creditor violates the stay "with knowledge that the bankruptcy petition has been filed." In re Wingard, 382 B.R. at 901 (citations omitted). It does not matter whether the debtor intended to violate the stay. Instead, it is enough "that the acts which violate the stay be intentional." Id. In other words, a violation is willful when the creditor knows about the stay and intended to act in the way that violated the stay. For example, if the creditor sends a letter to the debtor that violates the stay, the creditor is still potentially liable for that letter, even if the creditor thought the letter did not violate the stay.
Courts take a relatively broad view of what actions violate the stay. Even if the creditor does not demand payment but pressures the debtor in some way, it may be a violation. For example, sending a letter scolding the debtor for filing for bankruptcy or implying that the creditor can have the bankruptcy dismissed may land the creditor in hot water. Even actions that the creditor takes on the advice of counsel that violate the stay have resulted in an award of damages.
We will get into proving emotional and actual damages for violating the stay in a later post. However, if you believe that a creditor has violated the automatic stay by continuing collection action after you have filed, be sure to discuss it with your bankruptcy attorney.