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Bankruptcy Contempt Actions

The Automatic Stay

The filing of a bankruptcy case invokes the automatic stay under section 362 of the Bankruptcy Code. The automatic stay is a temporary injunction which prohibits creditors from contacting an individual who has filed bankruptcy in any manner to collect a debt. This includes calls from bill collectors, statements, demand letters, and auto-dialer messages demanding payment of a pre bankruptcy debt.

The Discharge Injunction

About 4 months after bankruptcy filing the Court will issue a discharge in a case involving indivdiual debtors. Corporate or partnership debtors do not receive a discharge. The Discharge Order is a permanent injunction barring creditors from any acts to collect a pre-bankruptcy debt.

What Happens When a Creditor Attempts to Collect a Debt Included in Bankruptcy?

Willful attempts to collect debts after filing, but before discharge, can be violations of the automatic stay and, after discharge, violations of the Discharge Injunction. Both can be punishable by contempt entitling the debtor to actual damages, punitive damages, attorney’s fees and costs of court (if proved to the satisfaction of the Court). In a recent opinion Leif M. Clark, U. S. Bankruptcy Judge for the Western District of Texas, awarded the wife of ex-San Antonio Spurs player, George Gervin, $25,000.00 in actual damages against a creditor for violation of her discharge for attempting to collect a discharged debt.

Bankruptcy Contempt Actions

A debtor can bring a lawsuit (adversary proceeding) against a creditor and/or its collection agency for violation of the automatic stay and/or discharge order. This type of lawsuit also usually contains claims for violation of the federal Fair Debt Collection Practices Act and Texas Debt Collection Act because stay or discharge violations often violate other state and federal laws as well. This type of lawsuit is usually handled on a contingent fee basis. This means that the debtor pays his lawyer a percentage of any recovery. Martin Seidler has filed many such contempt adversary proceedings with excellent results. Recoveries have amounted to thousands of dollars per case for his debtor clients who never expected to “walk away” from bankruptcy with the creditors paying them!

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