- At the moment a bankruptcy petition is filed by a debtor, the automatic stay goes into effect. The automatic stay is an injunction that protects the debtor from lawsuits and debt collection. Thus, a debt collector is prohibited from contacting the debtor to collect a debt. Violation of the automatic stay may result in monetary sanctions against the debt collector. The automatic stay terminates upon of the closure of the case or the dismissal of the case, whichever occurs earlier.
- A debt collector, however, has the option of seeking relief from the automatic stay. The automatic stay may only be lifted by a motion filed with the bankruptcy court. The debt collector must demonstrate cause to terminate the stay. Cause usually only exists if the debt collector is holding a secured debt, such as a car loan or a home loan, and the property lacks equity. If the bankruptcy court grants relief from the automatic stay, the debt collector is free to collect the debt.
- Upon the completion of a bankruptcy case, the court issues a discharge order, precluding creditors from seeking to satisfy their claims from the debtor personally. Thus, any attempts by a debt collector to collect a debt subsequent to the discharge order will be in violation of the discharge. Violating a discharge may be as simple as sending a letter to the debtor requesting that he make a payment. Similar to violation of the automatic stay, violation of the discharge order will subject the debt collector to monetary sanctions.
- At the completion of a bankruptcy and subsequent to the discharge order, not all debts will be discharged. For example, most tax debt, child support debt and spousal support debt are not discharged in a bankruptcy. Therefore, a debt collector is free to contact these debtors and demand payment or initiate any legal proceeding. Even if the debt is non-dischargeable, the debt collector is still precluded from collecting the debt while the automatic stay is in effect.
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