A Chapter 7 bankruptcy case is also called a “straight” bankruptcy. The idea is that the debtor does not have enough income to pay creditors over a reasonable period of time, so all unsecured creditors can recover is any money from the liquidation of the debtor’s non-exempt property. In most cases that means unsecured creditors receive (drum roll please). . . a big fat nothing.
At the end of your Chapter 7 bankruptcy case, the court will enter a discharge order. This order is a permanent injunction prohibiting the discharged creditor from taking any type of collection action against you, including:
- Placing telephone calls to collect;
- Sending collection letters;
- Contacting third parties (e.g. friends, family) regarding a discharged debt;
- Filing a collection lawsuit in state court; or
- Taking state law collection actions, such as garnishing wages or seizing bank accounts.
The discharge order is not the only consumer protection you have, but it’s the only protection you need. The discharge order is the most important document in your Chapter 7 bankruptcy case and provides permanent peace of mind. Congress has commented that
The injunction is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts. . . and is intended to insure that once a debt is discharged, the debtor will not be pressured in any way to repay it. In effect, the discharge extinguishes the debt, and creditors may not attempt to avoid that.
Senate report no. 95–989.
A creditor who knowingly violates the bankruptcy discharge order may be held in contempt of court. A court may impose civil contempt sanctions where there is clear and convincing evidence that (1) a valid order of the court existed; (2) the defendant had knowledge of the order; and (3) the defendant disobeyed the order. See e.g. Robin v. Woods, 28 F.3d 396 (3d Cir. 1994).
Keep your discharge order in a safe place after your case closes. It is your shield against future collection activity.
If you are considering filing for bankruptcy please contact the experienced attorneys at Fears Nachawati for a free consultation. Call us at 1-866-705-7584 or send an email to fears@fnlawfirm.com.