Filing for bankruptcy provides certain protections from debt collectors. An automatic stay is issued after a debtor files for bankruptcy. Once the automatic stay is issued, most creditors cannot resume attempts to collect debts. However, some creditors may violate the automatic stay and commit collection harassment.
A recent case that made its way through the 3rd Circuit Court of Appeals involved multiple stay violations that went far beyond phone calls.
The 3rd Circuit Court of Appeals recently upheld a $50,000 emotional distress award stemming from a business bankruptcy. In the case, a husband and wife were terrorized by their landlord after their daycare center filed for bankruptcy. The couple accused the landlord of the following:
- Entering the daycare uninvited and backing one of the owners (the wife) against the wall. She claims the landlord began asking, “do you want to hit me?” multiple times.
- Returning to the business after hours to chain the doors to the daycare shut. The owners later returned and unchained the doors. To prevent the doors from being chained again, the owners began sleeping inside the daycare. However, the landlord returned later that night and took the wife’s keys, locking both owners inside. The owners were forced to call the police so they could exit the daycare.
- Using an attorney to threaten the new owners’ new landlord with a lawsuit if he did not terminate their lease.
Both owners claimed the harassment left them psychologically scarred – not surprising in the least. The bankruptcy court awarded them $10,100 in emotional distress damages and $40,000 in punitive damages. Due to the severe nature of the stay violations, the owners did not have to submit medical documentation to support their claims of emotional distress.
Can You Hold Creditors Accountable for Collection Harassment?
The case above is an extreme example, and the collection tactics would have been illegal even if the couple had not filed for bankruptcy. However, creditors are not allowed to make phone calls to pursue debts after an automatic stay has been issued. They can file a motion for relief from the automatic stay, but the bankruptcy court does not have to approve this request. In the event a creditor does violate the automatic stay during your bankruptcy and refuses to cease contact, your attorney may notify the bankruptcy court or file a lawsuit against the creditor.
The Kansas City business bankruptcy attorneys at The Sader Law Firm can help struggling business owners find solutions for managing excessive debts.