What Happens if Someone Tries to Collect on a Debt Discharged in Bankruptcy?

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This question comes up all the time. What happens if someone tries to collect a debt that has been discharged in a bankruptcy case? There are many scenarios in which someone may try and collect a debt that has been discharged in bankruptcy. Maybe the creditor received notice and then mistakenly did not update the account records? Maybe the debt was transferred or assigned to a collection agency that does not know that a bankruptcy case was filed? What can be done about it was addressed in Barrientos v. Wells Fargo Bank (In re Barrientos), 663 F. 3d 1186 (9th Cir. February, 2011).

In Barrientos the bankruptcy filer noticed that a credit reporting agency was reporting a debt for Wells Fargo was still owed. Barrientos disputed the debt and Wells Fargo verified the debt in violation of the order of discharge and Section 524 of the Bankruptcy Code.

So what can be done here? In this case the bankruptcy attorney filed an adversary proceeding to sue Wells Fargo for an injunction, declaratory relief and contempt for violation of the order of discharge seeking damages including attorney’s fees and costs. The 9th Circuit in Barrientos held that the proper remedy is to seek an order of contempt from the bankruptcy court and not file an adversary proceeding. Section 524 of the Bankruptcy Code does not provide a private right of action for damages. The normal remedy for the violation of a court order is to hold the violator in contempt of court. The discharge order is no different. The discharge order signed by the court permanently enjoins a creditor from every collecting on the debt again.

Federal Rule of Bankruptcy Procedure 9020 provides that FRBP 9014 governs motions for contempt by trustee or a party in interest. So your bankruptcy lawyer needs to reopen the bankruptcy case and file a motion for contempt if a creditor violates the order of discharge and attempts to collect a discharged debt. Whether you actually seek contempt depends upon if there are damages and how severe the damages are. To reopen a bankruptcy case the court filing fee is $260.00. To stop the collection activity you may only have to send the creditor the order of discharge for their records. If a creditor sues you, repossesses a vehicle or continues with a foreclosure sale of your home in violation of the automatic stay or order of discharge your damages could be very significant.