Collection Attempts Are Barred Post-Filing Even If Wrapped in Threat of Criminal Charge
Filing a Chapter 7 or Chapter 13 Bankruptcy Collections Harassment
The moment you file a bankruptcy in Michigan, all collections activity must stop under the “automatic stay” injunction that activates automatically and instantly with the filing of the case in the Federal Bankruptcy Court. Creditors cannot engage in any of the usual sorts of collection activity: no phone-calls, no mailing of invoices or bills or threatening letters, no lawsuits may proceed, no garnishment, no foreclosure, no repossession or seizure o property—nothing.
The automatic stay is one of the most powerful benefits of the bankruptcy process. Creditors who violate the automatic stay are subject to contempt charges in Federal court and sanctions, which means money for you.
There are, however, just a few types of action that the automatic stay does not bar: eviction by a landlord if the landlord already has a judgment for possession of rental premises prior to the filing of the case; actions for recovery of child support or spousal support or alimony obligations; and criminal charges.
Criminal Charges Are Not Halted by the Bankruptcy Process
Under the Federal Bankruptcy Code, criminal processes are not halted by the automatic stay. This includes anything from homicide charges to parking tickets (although some bankruptcy attorneys may tell you that such tickets are discharged, this is not true). Any criminal charge or legal process underway prior to the filing of the Chapter 7 or Chapter 13 bankruptcy case is unaffected by the filing of the bankruptcy. The trial, the grand jury, the parking ticket payment deadline date … All still roll forward.
Creditors Cannot Threaten Criminal Charges to Scare You into Paying
Despite that, a commercial creditor such as a credit card servicer, land-lord, or other civil money judgment holder, cannot threaten to file criminal charges against you in order to coerce you into paying a debt that will be discharged in a Chapter 7 or 13 bankruptcy.
Last year, the Sixth Circuit ruled in a case called Weary v Poteat that a landlord who sent a bankruptcy debtor a letter threatening criminal action in order to scare the debtor into paying the debt owed after the bankruptcy had been filed was in violation of the automatic stay. The landlord was ordered to pay contempt sanctions of $7500.00 for his trouble.
The moral of the story is that creditors should not get cute when a bankruptcy is filed. The automatic stay remains one of those most powerful tools available to debt-burdened consumers under American law.
If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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