“Friendly” creditor phone calls and e-mails held to violate the bankruptcy discharge

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Chapter 7 Bankruptcy Collection Lawsuits

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Posted by: John O'Connor

Collection Efforts Prohibited by Bankruptcy Discharge

Once you file for bankruptcy and receive your discharge order from the court, creditors are prohibited from attempting to collect on debts that were included in your bankruptcy, period. Section 524(a)(2) of the Bankruptcy Code explains that a bankruptcy discharge

“operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such [discharged] debt as a personal liability of the debtor.”

Although section 542(a)(2) only prohibits attempts to collect on discharged debts, a recent decision out of the Bankruptcy Court for the Western District of North Carolina, reminds us that even “friendly” contact after the bankruptcy discharge is prohibited if the primary motivation is to collect on a debt. In other words, creditors cannot hide behind smiles and birthday cards as a mechanism for sidestepping the discharge injunction.

In Re Malone: Former Friend Not Permitted to Contact Debtor About Discharged Debt

In the case of In re Malone, a creditor who was once a friend of the debtor, attempted to collect on a debt by calling and e-mailing long after the friendship had ended. The discharge of a $14,000 debt caused the friendship to disintegrate and the debtor requested that the contact cease. After repeated unsuccessful attempts by the debtor’s attorney to dissuade the creditor from further contact, the debtor filed an adversary proceeding seeking punitive damages for an “egregious and clear disregard of the discharge.” In finding for the debtor, the court made note of the following factors:

1. The social relationship between creditor and debtor had ended prior to the filing of the bankruptcy case;

2. The creditor only contacted the debtor after the bankruptcy case ended, but made no efforts to socialize while the automatic stay was in place;

3. The creditors pattern of contact was far more consistent with debt collection efforts than with a sincere desire to socialize

Calling nineteen times in six days is more consistent with a creditor attempting to collect a debt than simply trying to check in on friends, especially after the alleged friends have indicated that they were not interested in any contact.

4. Finally, the court noted that the creditor only stopped mentioning the debt once he received cease-and-desist letters from the debtor’s bankruptcy attorney.

The Line Between Friendly Contact and Discharge Violation Can be Blurry in Some Cases

In his opinion, Judge Craig Whitley acknowledged that, in some cases, the line between friendly contact and discharge violation can be blurry.

the interplay of a friendly relationship and a discharged debt [ca] make determining whether post-discharge communications violate the discharge injunction a difficult call in certain circumstances

However, Judge Whitley ultimately found the facts of the case warranted a violation of the discharge order, because it was clear that the friendship between debtor and creditor had long since ended and the social relationship was just a pretense to pester the debtor about debts he discharged in bankruptcy.