Creditor Consequences In Bankruptcy

: Chris Lee Law Firm

  Filed under: Bankruptcy

automatic stayOne of the most sought after benefits of bankruptcy is protection from creditors. When a debtor files for bankruptcy an automatic stay ordered is issued, which legally prohibits creditors from making contact or collection attempts with the debtor. However, not all creditors abide by this legal order.

What Happens Then?

If a creditor violates an automatic stay order, they can be subject to serious consequences. First, the creditor may be ordered to pay the debtor damages including costs and attorney fees. The bankruptcy court may disqualify the creditor from receiving any priority claims or assets rights. However, the process of applying consequences to a creditor can be difficult as there must be clear proof of a “willful” violation of the order.

In bankruptcy, a discharge orders a permanent injunction against creditors from collecting on the debt outside of the plan determined in the case filing. Violations of this injunction also carry consequences for creditors.  The court may view any collection actions after a discharge as being in contempt of court, punishable by fines and further damages.


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