To Catch a Creditor: Is Pursuing Discharged Debt Illegal?

Is Pursing Discharged Debt Illegal?

The short answer to this question is yes. Pursuing an already discharged debt is against federal law, but there is a lot more that you need to know in case you ever find that your debts discharged through bankruptcy are still being pursued by creditors. Before you take action, contact your Lafayette, Indiana bankruptcy attorney Brad A. Woolley.

Debts discharged during a Chapter 7 bankruptcy case or Chapter 13 bankruptcy case are off limits to creditors. In fact, the Bankruptcy Code states that it is illegal to try to collect on these debts at all after they have been discharged. The Bankruptcy Code makes it clear that starting or continuing a lawsuit or using any other methods to collect discharged debts is not allowed and is against the law.

What if a Creditor is Still Pursuing My Debt?

The section of the Bankruptcy Code that discusses this problem does not state what will happen if a creditor ignores the rule and pursues your discharged debts anyway. There are no listed penalties. Actually, it does not even state that there are penalties that should be issued at all.

The courts, however, have come to an agreement about what is to be done in the case of this violation. Another section of the Bankruptcy Code discusses “Power of Court,” which refers to what happens when the court or bankruptcy court makes a decision. Because the rule about ceasing to pursue discharged debts is a court order, any creditor breaking this rule is treated as though they are in contempt of court. This means that the penalties issued are most often the same as those issued when someone is in civil contempt of court.

What are the Penalties?

There are two types of penalties for civil contempt of court: compensatory damages and punitive damages.

The first, compensatory damages, are for the benefit of the individual harmed by a creditor trying to collect on discharged debts. They are exactly what they sound like: compensation. These can include things like financial losses from missed work, emotional distress, or even attorney fees from the process.

After compensatory damages, the creditor may still need to be penalized for the illegal actions taken in an effort to collect discharged debts. This is where punitive damages are useful. The judge will decide if punitive damages are necessary and if so, how much they should be.

The Bottom Line

More often than not, Chapter 7 bankruptcy and Chapter 13 bankruptcy are effective in getting creditors to write off your debts and leave you be. However, sometimes creditors will attempt to collect on a discharged debt. Even though it is illegal to do this, some creditors simply disregard the law or keep poor records of what debts have been discharged.

It is important to get in touch with your bankruptcy attorney immediately if you continue to hear from creditors after bankruptcy. You and your attorney may even discuss an effort to push back at the violating creditor if the situation becomes exceptionally bad. If this is the case, there may even be financial gain from this process.

If you find that a creditor is still attempting to collect on a debt after it has been discharged in Chapter 7 or Chapter 13 bankruptcy, you need to contact an attorney. Let bankruptcy attorney Brad A. Woolley assist you with your initial bankruptcy case and any problems you might experience with creditors after your debts have been discharged.