In March, Pittsburgh-based battery maker Aquion Energy Inc. filed for bankruptcy after failing to generate the necessary funding to continue business operations. In response, Aquion’s biggest creditor – the Pennsylvania Department of Community and Economic Development (DCED) – made clear its intentions to protect its own best interests. According to a statement issued by DCED spokesperson Heidi Havens, “DCED is prepared to take whatever steps are necessary and legal under the bankruptcy code to recover our loans,” which are secured by unspecified collateral. Despite referring to a business bankruptcy, this brief quote brings up an excellent point for individual debtors: are creditors allowed to pursue debt collection during a personal bankruptcy case? And if not, what should the filer do if he or she is pursued by debt collectors? Our Philadelphia bankruptcy lawyers discuss these key aspects of debt collection during bankruptcy in Pennsylvania.
Can Debt Collectors Contact You After You File for Bankruptcy in PA?
The short answer to this question is no, at least in most instances. Generally speaking, debt collectors are prohibited from contacting you after you have filed for Chapter 7 bankruptcy or Chapter 13 bankruptcy in Pennsylvania (or, for that matter, in any other state). But before we examine the exceptions to this rule – or discuss what to do if a creditor violates it – let’s explain why the rule exists in the first place.
The main benefit of declaring bankruptcy is obtaining relief from excessive debt (though some filers might argue that an even greater benefit, at least under Chapter 13, is the ability to stop foreclosure from occurring). What fewer filers realize is that, in addition to eliminating the debtor’s liability for various debts, bankruptcy also comes with a second, lesser-known benefit: the automatic stay.
Put simply, the automatic stay is a court order that blocks your creditors from attempting to collect debts while your case is pending, or still underway. As its name implies, the automatic stay is effective immediately upon filing, and, with some exceptions, persists throughout the duration of the case. An example of an exception would be a scenario in which the debtor had a previous case pending during the year leading up to the current bankruptcy, in which case the stay would typically be shortened to just 30 days.
When you file for bankruptcy, which you will likely do in U.S. Bankruptcy Court for the Eastern District of Pennsylvania, the court will notify your creditors on your behalf. Once your creditors become aware of your bankruptcy, they effectively have two options: refrain from attempting to collect the debt, or ask the court to lift the stay by filing a motion, which is a written request.
If the creditor does neither, and simply continues to pursue you without obtaining relief from the stay beforehand, the creditor’s actions are likely to constitute a violation of the automatic stay. There are, however, several debts which are unaffected by the automatic stay, including:
- Debts you incurred after you filed for bankruptcy.
- Debts pertaining to child support, alimony, criminal restitution, and certain tax obligations.
If you think that a creditor or debt collector might be in violation of the automatic stay while your bankruptcy case is pending, you should notify your attorney immediately, as legal remedies may be available. In addition to violating bankruptcy regulations, the debt collector may also be acting in violation of the Fair Debt Collection Practices Act (FDCPA), a federal consumer protection law that creates guidelines for how debt collectors are required to conduct their business. Furthermore, the FDCPA is supplemented at the state level by the Pennsylvania Fair Debt Collection Practices Act.
The automatic stay itself is a component of federal bankruptcy regulations, which means it applies not only to debtors in Pennsylvania, but throughout the U.S. Regardless of which state you file in, you will generally enjoy the protection of the automatic stay unless you have filed during the previous year, the stay is lifted, or other exceptions apply.
Philadelphia Bankruptcy Lawyers for Chapter 7 and Chapter 13
Are you dealing with constant, stressful creditor harassment? Are you worried that your wages could be garnished, your vehicle could be repossessed, or your utilities are going to be disconnected? Are you trying to postpone or prevent foreclosure proceedings? If you answered yes to any of these questions, and you are struggling to pay off debts that have become financially overwhelming, filing for bankruptcy under Chapter 7 or Chapter 13 could be the solution. Personal bankruptcy allows filers to wipe away most of their debt, including credit card debt and medical debt, while simultaneously protecting debtors with the automatic stay.
If you live in Montgomery County, Bucks County, Delaware County, or the Philadelphia area, and you think bankruptcy might be right for you, you are urged to contact the Philadelphia Chapter 7 attorneys or Philadelphia Chapter 13 lawyers of Sadek & Cooper Law Offices. We have years of experience handling thousands of bankruptcy petitions, and have helped Pennsylvanians from all walks of life regain control of their finances through the power of personal bankruptcy. To learn more about declaring bankruptcy, debt elimination, and the automatic stay, contact our law offices at (215) 995-2543 for a free consultation today.