Debt collectors cannot collect debts that have been discharged in bankruptcy. In fact, once a bankruptcy petition is filed, all debt collection must stop.
As noted in this recent New York Times article, however, a number of creditors and debt buyers are allegedly attempting to collect on discharged debts.
Once a bankruptcy petition is filed, collection must stop
Once a bankruptcy petition is filed, all debt collection must stop. Creditors, debt buyers, and debt collectors receive notice directly from the bankruptcy court, informing them of a consumer’s bankruptcy petition.
Frankly, many creditors and debt collectors learn of your petition the instant it is filed—because they subscribe to a service that alerts them when a consumer files bankruptcy.
In any event, the notice to creditors is sent within a couple of days of the filing of a bankruptcy petition. At the very latest, a creditor learns of your petition within 1-2 weeks of the filing.
Further collection is improper
Once a debt collector knows you have filed bankruptcy, they cannot attempt to collect on the debt. If you receive a call from a debt collector and you inform them that you have filed bankruptcy, they have to stop collecting. If you inform them that you have hired an attorney, they can ask you for the name and contact information for your bankruptcy attorney–but that is all.
They cannot ask if you have paid the retainer to your bankruptcy attorney, they cannot ask why you filed bankruptcy, and they should not contact you directly. The purpose of the automatic stay is to prevent any and all debt collection efforts.
Debts that are discharged cannot be collected on
Once the debt is discharged, it is no longer owed, which means any collection efforts are illegal. Collecting on a discharged debt violates numerous and multiple provisions of the Fair Debt Collection Practices Act (FDCPA).
Even if a debt collector was not provided with prior notice of a bankruptcy, the debt collector must have a procedure for preventing collection of discharged debts. Not only that, they have to actually follow the procedure to avoid liability.
The New York Times article talks about one way that creditors are allegedly trying to get consumers to pay discharged debts—by allegedly improperly reporting the debts to the credit bureaus.
Once a debt is discharged, it can be listed on credit reports–but it has to be reported accurately. For example, the debt should no longer have a balance, and should not be reported as owed. Many times it says something to the effect of “Discharged in bankruptcy” or “zero balance – chapter 7 bankruptcy.”
Incorrectly reporting it as having a balance is a way to entice consumers to make payments. For most consumers, having an unpaid debt on their credit report can be a roadblock to obtain a mortgage or car loan. And even if a consumer filed bankruptcy, they think that paying the debt is the only way to get rid of it from a credit report. Which is simply not true. Reporting the debt incorrectly may violate both the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.
Protect yourself against illegal debt collection
If you have been contacted by a debt collector after you hired a bankruptcy attorney, after you filed bankruptcy, or after your bankruptcy petition was discharged, you should contact a consumer rights attorney. You may have a claim for a violation of the FDCPA.