Sometimes people will refer to bankruptcy as a shield and the Fair Debt Collection Practices Act (FDCPA) as a sword, or vice versa. It’s contradictory, but the point is that both laws are designed to protect debtors in different contexts that hopefully don’t overlap. Bankruptcy allows debtors to get rid of debts without punishing overbearing creditors; the FDCPA penalizes debt collectors but keeps the debts in place. So the question boils down to enforcement: What prevents a creditor from collecting on a discharged debt and what deters a debt collector from making more phone calls? In other words, what’s the difference between the remedies the two laws promise?
For bankruptcy, the statutory enforcement mechanism isn’t explicitly spelled out in the Bankruptcy Code. Section 524(a)(2) codifies the discharge order as an injunction against any effort to recover a debt, whether the debtor waived the action or not. However, the law doesn’t point to an explicit set of options a debtor has if a creditor violates the injunction. As a result, courts have interpreted section 105 of the Bankruptcy Code as authorizing bankruptcy courts to issue any order necessary to enforce the goals of the bankruptcy law. Courts have further interpreted that to mean that the appropriate remedy for violations is an order finding the creditor in contempt of court. The damages can be compensation for the harm suffered (e.g. lost wages dealing with the creditor), attorney’s fees for bringing the case, sanctions against the creditor, and even punitive damages in rare cases.
By contrast, the FDCPA is much clearer in its remedies for debtors. Section 813 of the FDCPA establishes the damages that debtors may assert against debt collectors that break the law: actual damages sustained by the debtor (again, like wages), up to $1,000 in additional damages if the court agrees, in class actions the lesser of up to $500,000 or 1 percent of the debt collector’s net worth, court costs, and attorney’s fees. Debtors can sue debt collectors in standard state courts with universal jurisdiction or federal court.
It appears the damages for violating the discharge injunction can be greater than the FDCPA. However, debtors’ objectives in enforcing the law against creditors should not be simply compensatory or punitive. Rather, debtors should use the law to obtain the best result given their circumstances. The FDCPA is good for debtors whose main problem is their creditors’ behavior. Bankruptcy is good for debtors who want to be rid of their debts.
Whether you are facing debt collectors or insurmountable debts, talking to an experienced New York bankruptcy lawyer can help you strategize the best course of action.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
