Over the past few months, I have received a number of calls from former clients regarding possible discharge stay violation actions. As you may know, if you successfully complete your Chapter 7 or Chapter 13 case, the judge will issue a discharge order. One effect of that discharge order is to make the automatic stay that protected you from creditor collection activities into a a permanent injunction against attempts to collect discharged debt.
More and more, it seems, creditors and collection agencies are pursuing discharged debt despite the absolute illegality of such activity.
My Bankruptcy Law Network colleague Kent Anderson offers an informative overview of this “zombie debt” in a recent BLN blog post.
I have not previously included Fair Debt Collection or Fair Credit Reporting work as part of my practice, but I am thinking about doing so. Amazingly, there are some large, highly respectable companies involved in the zombie debt business. Business Week published an interesting article about this phenomenon in 2007 called “Prisoners of Debt,” an article that is worth a read.
Apparently the zombie debt collectors are trained to walk a very fine line in terms what they say in collection phone calls. These bill collectors are given scripts that often imply legal liability without specifically asserting that the debt is legally collectible. Attorneys who pursue discharge violation actions, Fair Debt Practices action or Fair Credit Reporting actions often do not have a paper trail. Zombie debt collectors rarely put anything incriminating in writing and they rely on the fact that most people do not have the equipment to record calls.
Texas attorney Brian Allen has an interesting post on his blog in July, 2008 in which he reproduces a recording from a zombie debt collector. As Brian notes, the bill collector is attempting to get as close to the line of illegal activity as possible – and perhaps this collector crosses the line – what do you think:
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In any case, if you get calls from debts that were discharged or that are extremely old, you may have a claim for damages based on violation of federal law. I plan to explore these issues in future posts where I can hopefully give readers of my blog more guidance as to what to do.
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Search the term “stay violation” on any consumer bankruptcy blog and you will find stories of situations where creditors get hit with well deserved sanctions for their failure to stop harassing a debtor despite knowledge of a bankruptcy filing. Despite the trend in the law to give creditors more protections, bankruptcy judges are generally extremely protective of debtors when it comes to automatic stay violations. The automatic stay functions as the core protection of bankruptcy and creditors violate the stay at their peril.
Unfortunately, however, bad facts truly do make bad law. Now we have a case where a sincere, well-intentioned creditor is being hit with sanctions for what appear to be innocent actions against a debtor with less than clean hands. The case involves a Connecticut homeowner named Mark Poveromo who got slammed for sanctions after he pursued criminal sanctions against a dishonest contractor who used a bad address for Mr. Poveromo in this Missouri bankruptcy filing. You can read the details of this story in an AP news release called Bankruptcy Judge Orders Victim to Pay Back Thief.
I suspect that most objective observers would conclude that creditor Poveromo was the wronged party here, after being ripped off by his contractor, spending money for two plane tickets and dealing with a judge who refused to let him appear telephonically. Nevertheless, this case shows how seriously bankruptcy judges treat stay violations even in situations where the debtors are very unsympathetic.
A bigger concern, however, is the likelihood that creditor advocates will use cases like this one to push Congress to erode automatic stay protections. My experience has been that most stay violation cases involve bullying creditors and fact patterns like the one in this case are rare. I will not be surprised to see efforts by lawmakers to reduce automatic stay protections.
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