This is the second in a series of posts, where we will look at various options for the creditor in a bankruptcy case. These are just designed to let you know what remedies might be available to you.
Regardless of what type of bankruptcy was filed, you must immediately cease any and all collection efforts upon getting notice of the filing. Once any bankruptcy case is filed, the Automatic Stay as described in Section 362 of the Bankruptcy Code takes effect, and virtually all actions against the Debtor or property of the estate must cease.
Watch Out for Penalties for Continuing to Collect
There are severe penalties for creditors who “knowingly and willingly” violate the automatic stay, and in addition to having to pay your own lawyer to defend you, you may get stuck paying the Debtor money damages and his attorney’s fees and expenses.
Punitive Damages Are Possible
Section 362(k)(1) of the Bankruptcy Code provides that “…an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”
Some courts have interpreted the language of Section 362(k)(1) to limit the section to individual debtors (not corporations or other entities), but even in non-individual cases, most courts have allowed the recovery of damages for a willful violation of the stay through use of the Court’s general equity powers of Section 105 of the Bankruptcy Code. The Courts take these violations seriously, and even the IRS and State Officials are not immune from sanctions for willful violations of either the automatic stay or the discharge injunction.
Because there is often some delay between the time of the filing of the case and the creditor’s receipt of notice, the Courts require that the violation be “willful”, which means that the creditor must have knowledge of the filing. Once the creditor does have knowledge, however, the creditor should remedy any actions taken in unknowing violation of the stay (such as dismissing a lawsuit if it was filed after the bankruptcy case was commenced). Failure to do so promptly may also result in the imposition of sanctions by the bankruptcy court.
If the Debtor gives telephonic notice, that is sufficient to require that the creditor reasonably investigate whether the filing actually happened, and to take no further action until the creditor has done so. Bankruptcy Court records are available for a nominal charge through PACER (Public Access to Court Electronic Records), www.pacer.gov. PACER requires that you register before you can search the records, but there is no fee to register. Most attorneys who practice in the Federal Courts have accounts and can obtain the information for you.