The Automatic Stay and Discharge Injunction

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Immediately upon the bankruptcy being filed, an Automatic Stay Order is entered by the bankruptcy court. The Automatic Stay is an order staying or putting a halt to all collection activity. Notice of the Automatic Stay is provided to all creditors who are identified in your bankruptcy schedules. This Notice is normally mailed to creditors within 5-7 days of the filing. Creditors or collections agencies that disregard this Order and further their collection efforts can be sued in the Bankruptcy Court for violation of the stay order. Damages and legal fees are recoverable in such cases. Secured creditors can file a Motion for Relief from the Automatic Stay which will permit them to recover the property or collateral that has been pledged as security for their loan. These Motions are normally only filed in mortgage foreclosures, less frequently in auto loan cases. Upon the entry of a discharge order, an injunction is granted by the Bankruptcy Court which serves to protect the Debtor from the collection of discharged debts forever after. Like with the Automatic Stay violation of the discharge injunction can be prosecuted for damages at any point.

We generally will instruct our clients to keep an eye out for these types of violations and to report them to our office at once. We also request that any documentation that is received be preserved for use in the prosecution. This would include any voice mail messages, emails, letters, invoices or account statements together with their envelopes. We are mindful that there must be time for the creditor to receive the Automatic Stay Order and to process it so that collection type communications are stopped. Accordingly, while there may be a technical violation of the Stay Order most of the current Judges will not award damages in a “gotcha” type case. They will normally want to see some type of conduct over a period of time before anything of significance is awarded. Despite these seemingly liberal applications of the code we do encourage our clients to provide us with every possible bit of information that could represent a violation of the stay for a proper evaluation.

We also encourage our clients to routinely check their credit reports post-bankruptcy discharge to insure that the debt that was included is discharged and remains discharged. On occasion a debt that has been discharged will resurface on a report. We refer to these debts as “Zombie Debts”. And while Zombie Debt is technically uncollectable it does create problems with your credit report. Properly drafted letters requesting that the debt be removed are the first step toward cleaning the report and setting the matter up for prosecution of potential discharge injunction violations as well as violations of the Fair Credit Reporting Act.

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