Court Rules Collection Letter to Deceased Co-Borrower Did Not Violate Automatic Stay

Collection letter found not to violate the automatic stay

Bankruptcy Debtors Shielded From Collection Activity

If you’ve spent any time reading National Bankruptcy Forum, you know that once a bankruptcy case is filed creditors are prohibited from contacting the debtor. Thanks to a powerful court-ordered injunction known as the automatic stay, consumers who elect to file for bankruptcy are given an opportunity to catch their breath free from creditor harassment.

Foreclosure, collection phone calls, lawsuits and even garnishment must cease while the bankruptcy case is pending. Courts take the protection of the automatic stay very seriously and most creditors know not to contact a debtor once they receive notice of a bankruptcy.

Morales vs. Banco Popular

However, there are always exceptions to every rule. In the case of Morales vs. Banco Popular, the defendant bank sent two credit card collection letters to the deceased mother of the debtor after the debtor had filed for chapter 13 bankruptcy. The debtor was a co-debtor with her deceased mother on the credit card accounts. Despite the fact that the address listed in her bankruptcy schedules was the same address where the collection letter were sent, the Court did not find a violation of the automatic stay. In finding that the creditor had not violated the automatic stay, the Court emphasized the fact that the letter was addressed to the deceased mother and not the debtor. Furthermore, the creditor hadn’t made any additional attempts to collect against the debtor.

Analysis

Although bankruptcy courts take the protections of the automatic stay very seriously, they must also balance the equities in every case. Here, the Court seemed hesitant to sanction a creditor for what amounted to a minor stay violation. In cases like these, most courts prefer the debtor or their attorney send a cease and desist letter before filing suit for sanctions. If creditors ignore repeated requests to honor the stay, the case for sanctions becomes stronger and Courts will be more willing to impose tougher penalties. It’s always better to try to work things out before resorting to costly litigation.

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