What Happens When a Creditor Is Sanctioned in a Bankruptcy Case?

By Heather Frances J.D.

Debtors typically file a bankruptcy case to get relief from creditors and overwhelming debt, and bankruptcy laws provide for an automatic stay that immediately halts all collection efforts by creditors. However, unscrupulous creditors sometimes ignore court orders, both during and after a bankruptcy case. When creditors violate the court’s instructions, the court may sanction them, often forcing them to pay fines as punishment.

Creditor Behavior

When a debtor files for bankruptcy, an automatic stay goes into effect, which orders creditors to stop all ongoing collection efforts and prohibits new collection attempts. Sometimes creditors ignore the stay, even after the debtor makes them aware of it. If the creditor’s collection efforts continue after the creditor is informed of the stay, bankruptcy courts can impose sanctions against that creditor. Similarly, creditors who file frivolous motions to delay the bankruptcy case or otherwise waste the court’s time could also face sanctions.

After Discharge

One of the final steps in a bankruptcy case is the discharge, or elimination, of a debtor’s remaining debt. Many types of debt are eligible for discharge. Once a debtor receives a discharge, creditors are prohibited from attempting to collect a discharged debt. When creditors try to collect on debts that have been discharged, debtors can seek sanctions against those creditors since courts can still issue sanctions after the bankruptcy case is completed.

Get a free, confidential bankruptcy evaluation. Learn More

Seeking Sanctions

When a creditor violates a bankruptcy court order, the debtor can first make sure the creditor is aware of the order. Once the creditor knows about the order, the debtor can return to court to ask for sanctions if the creditor continues to ignore it. To request sanctions, the debtor can file a motion with the bankruptcy court that issued the order, explaining how the creditor violated the order and asking for the type of sanctions the debtor wants. For example, the debtor can specifically ask for monetary sanctions to fine the creditor for its misbehavior.

Types of Sanctions

Bankruptcy courts have several sanction options at its disposal for addressing creditor violations. For example, courts can hold a creditor in contempt of court, impose fines or order the creditor to pay punitive damages to the debtor, including money for emotional distress. In addition, courts can order creditors to pay the debtor’s legal costs and attorney fees incurred by seeking the sanction.

Get a free, confidential bankruptcy evaluation. Learn More
Can Creditors Attempt to Get Money After a Discharge?
 

References

Related articles

What Won't Be Dismissed in Chapter 7

In a Chapter 7 bankruptcy, often called liquidation bankruptcy, a debtor's non-exempt assets are sold to pay the debtor's creditors. Often, a debtor has no non-exempt assets -- or not enough to cover his debts. In such cases, the debtor's remaining, unpaid debts can be discharged, or erased, by the bankruptcy court. Not all debts, however, can be discharged.

Can Bankruptcy Stop a Civil Lawsuit?

One of your creditors is suing you, and you've been served with court papers. This lawsuit will cost you a lot to defend, and if the creditor wins, the judgment can put you under financially. The good news is that the automatic stay in bankruptcy stops most civil suits the moment you file for bankruptcy. However, depending on the type of suit it is, the bankruptcy court can lift the automatic stay to permit the suit to go forward.

What Happens to an Unsecured Loan After Chapter 13 Has Been Dismissed?

When you file for bankruptcy protection under Chapter 13, you are asking a federal court for protection from your creditors. The court issues an automatic stay, meaning your creditors must stop all collection efforts and lawsuits against you. A trustee then draws up a repayment plan, which schedules monthly payments that will repay a portion of your unsecured debts. If you fail to meet the payments, the court may dismiss the case — and there will be important consequences for those unsecured debts.

Bankruptcy

Related articles

What Happens in Bankruptcy Court if I Do Not Show Up for a Motion Hearing?

Failing to show up at a scheduled motion hearing in bankruptcy court when you are required to do so could lead the ...

What Happens in a Civil Judgment Before Bankruptcy?

A civil judgment often leads to financial distress, which may lead a person to file for bankruptcy. Bankruptcy may mean ...

Legal Rights After Chapter 13 Dismissal

A chapter 13 bankruptcy can allow someone under extreme financial pressure the breathing room needed to reorganize his ...

What is a Notice of Dismissal of Bankruptcy?

Bankruptcy is a legal process by which debtors may restructure or obtain relief from overwhelming debts and get a fresh ...

Browse by category
Ready to Begin? GET STARTED