Discharge of debts is one of the primary goals of a New York bankruptcy, particularly chapter 7 filings. Covered in Section 524 of the Bankruptcy Code, the full name of the term is “discharge injunction,” which means it legally forbids anyone (creditors) from enforcing claims for payment against the debtor. That does not, however, mean creditors scrupulously obey the discharge injunction. Sometimes they will try to enforce a debt even if it’s been discharged. How exactly should debtors respond to creditors that behave this way? There are a few options.
Most importantly, tell them the situation and threaten them with legal action if they don’t comply. The law is on your side and most of the time their demand for payment was an honest mistake, or at least, they’ll know better than to keep pestering you about it.
If that doesn’t work, then your next option is to return to bankruptcy court. This means having your bankruptcy lawyer file an adversary proceeding against the creditor. If the creditor has notice that it has violated the discharge injunction, and you can prove it did so, then the bankruptcy court might hold the creditor in contempt of court. You might be entitled to monetary damages, attorney’s fees, and other sanctions.
As of now, the federal circuit courts are split on whether a debtor can sue a creditor who violates the discharge injunction under the Fair Debt Collection Practices Act (FDCPA) or analogous state laws. Some parts of the country allow it and some parts don’t. Since the bankruptcy court’s rules are certain to allow debtors to achieve the same remedy anyway, it’s probably not worthwhile to try FDCPA claims when bankruptcy rules will suffice.
Discharge injunction violations are rare, and usually creditors will stop their collection activities when they learn a debtor has dealt with the debt in bankruptcy. However, some creditors aren’t so bright or ethical and will need to be taken to court to prove the point.
For answers to more questions about bankruptcy, the discharge injunction, 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.