We wrote about the automatic stay (immediate debtor relief) in an earlier post.
When the debtor has fulfilled his or her post-petition obligations, the bankruptcy case is closed and a discharge order is issued, pursuant to 11 U.S.C. §524, discharging (wiping out) eligible debts as of the date of the bankruptcy filing. When the bankruptcy court enters the discharge order, the debtor is granted permanent, lifetime relief from bankruptcy creditors in what’s called a discharge injunction. Section 524′s discharge injunction forbids “the commencement or continuantion of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not such discharge of debt is waived.”
The discharge order automatically gives rise to a permanent statutory injunction prohibiting creditors from taking any action to collect a discharged debt. Since the purpose of filing bankruptcy is to obtain relief from the pressure of paying your overwhelming debts, the discharge injunction is your most important protection.
The discharge injunction does not prevent a secured creditor from foreclosing its lien or mortgage and taking back the property. However, the discharge injunction prohibits the secured creditor from any attempt to collect a deficiency debt which results from a foreclosure. While it is unusual for creditors to violate the discharge injunction by attempting to collect a debt discharged in a bankruptcy, it does happen. We have represented folks who surrendered a mortgaged house in a bankruptcy, and had the mortgage debt discharged in the bankruptcy, only to have the mortgage company assert years later that they owed the mortgage debt (plus interest, late fees, penalties, etc.). The mortgage company’s error may be attributable to its failure to foreclose on the property and thus cut off the debtor’s legal title to (legal ownership of) the property, or human error by its personnel, or merger with another bank — but whatever the reason, it’s the fault of the creditor and a violation of the discharge injunction.
If you have been contacted by a creditor and believe that contact violates the discharge injunction, seek legal counsel.