It may be obvious that the main reason people file for bankruptcy is that they simply have more debt than they can handle, and they want a fresh start; however, another big reason many people decide to move forward with a bankruptcy filing is that they are being badgered by creditors and they simply want to put a stop to it.
Merciless, constant calls from banks, credit-card companies, and debt-collection agencies trying to squeeze every penny that they can out of you exacerbate what is already an overwhelming and stressful financial situation
The United States Bankruptcy Code has a provision that, in theory, puts a stop to that. Section 362 of the Bankruptcy Code, commonly referred to as the “automatic stay,” says that creditors are prohibited from taking any action or continuing any action to collect debt from someone who has filed for bankruptcy. The automatic stay goes into effect immediately upon the filing of a bankruptcy petition, and cannot be lifted except by order of the Bankruptcy Court.
Any creditor who takes any action against a debtor in bankruptcy is in violation of federal law. Still, we routinely receive the following complaints from our bankruptcy clients: “I filed my bankruptcy petition weeks ago, but I keep getting called about this debt! Why are they calling me? I thought they weren’t allowed to do that anymore!” And our clients are correct: the Bankruptcy Code prohibits such conduct.
So why is it happening? It can’t be that these creditors are ignorant of the law; nearly every business on the face of the planet has a skilled legal team whose sole purpose is to keep them out of the kind of legal trouble that violating the Bankruptcy Code can lead to. It can’t be that they didn’t know about the bankruptcy, because the Bankruptcy Court mails the notice of filing to all creditors listed in the petition.
So, how in the world can creditors still be harassing someone after a bankruptcy petition has been filed? As a consumer litigation attorney, I deal with this issue constantly. Without question, the most frequent offenders of the automatic stay are banks (and their dedicated mortgage servicing subsidiaries) who are trying to collect the debt owed on a mortgage. With that knowledge, the answer to the above question becomes a little clearer. Think about it: banks are huge.
Most banks are composed of so many different yet similar entities that it can be difficult for someone—even an attorney—to determine what entity is causing the offending conduct to occur, and which entity we can legally sue. Although most banks who are owed a debt in bankruptcy get a notice sent to them at numerous physical addresses, it can take a while for the information to be entered into the proper system and received by the proper internal department. It may be weeks—or months—after you file your bankruptcy before their system is updated to reflect that you are protected by the automatic stay, and are no longer to be contacted regarding the debt.
Guess what? That’s not a valid excuse. The Bankruptcy Code is clear: the automatic stay is an absolute bar on any action to collect the debt from a bankruptcy debtor, and service of the notice is not even required. The automatic stay, as the name implies, is automatic upon filing, and applies to every single creditor whether or not they receive actual notice. All creditors are under an absolute duty to use reasonable methods to determine whether or not someone has filed for bankruptcy before attempting to collect the debt from them.
If you’ve filed for bankruptcy and you’re still being harassed by creditors, that’s a problem—for the creditors. Keep detailed records on every creditor’s attempt to contact you, and get them to your bankruptcy attorney right away.
Depending on how those creditors go about attempting to collect from you, your attorney may be able to sue them in bankruptcy court for money damages.