After a debtor files for bankruptcy in Texas, creditors’ attempts to collect will be automatically halted under a stay. One reason why many people seek the protection of Chapter 7 bankruptcy is because it’s becoming difficult or impossible to deal with creditor demands, which include lawsuits and threatened actions, repossessions or even constant collection calls. Under the automatic stay, creditors that want to proceed with an action like a lawsuit, auto repossession or lease termination need to first address the situation with the bankruptcy court. Those that do not may face significant penalties.
However, the issue of whether creditors need to actively stop existing actions that have already taken place is one that has not been fully resolved. Different bankruptcy courts have addressed the issue in different ways, and the Supreme Court is expected to decide on the issue in the coming term in order to resolve the uncertainty. In one case, a bankruptcy court penalized a creditor for failing to stop a wage garnishment action for a person in bankruptcy. The creditor was the debtor’s former lawyer who had represented her in a divorce. He obtained a judgment against her for unpaid legal bills and filed for wage garnishment.
When she filed for bankruptcy, her bankruptcy attorney reached out to the creditor and requested a halt to the action, noting that the debt was included in her bankruptcy petition. However, he refused to do so, stating that he had no obligation to stop the action. The bankruptcy court held the creditor in contempt, however, and ordered him to pay fees in the case.
While this issue remains in dispute, Chapter 7 bankruptcy may offer significant protection for those facing creditor actions. A bankruptcy attorney may provide advice on how a client could pursue debt relief and seek a new financial future.