What Are Creditors Allowed to Do During Bankruptcy?

 Posted on February 26, 2025 in Bankruptcy

If you are struggling with debt, the calls, letters, and threats from creditors can feel endless. Many people delay filing for bankruptcy because they fear what creditors might do. However, filing for bankruptcy actually provides legal protection that stops most creditor harassment immediately.

Bankruptcy is meant to give people a fresh financial start, but that does not mean creditors disappear overnight. They are still allowed to take certain actions, but there are strict rules about what they can and cannot do. Understanding these rules can help ease stress and prevent creditors from taking advantage of you, and our Texas bankruptcy lawyer is here to help.

Get Immediate Protection With an Automatic Stay

As soon as a bankruptcy case is filed, an automatic stay goes into effect under 11 U.S.C. § 362, halting most creditor actions. This legal order stops wage garnishments, lawsuits, collection calls, and other debt-related actions. Creditors must immediately stop contacting you about your debt. If they continue to call or send letters, they may be violating federal law, and you may have legal options to hold them accountable.

Creditors are required to follow strict rules during bankruptcy. The type of bankruptcy you file — Chapter 7 or Chapter 13 — determines what creditors are allowed to do.

What Can Creditors Do in Chapter 7 Bankruptcy?

In a Chapter 7 bankruptcy, some debts are completely eliminated, while secured debts tied to collateral, such as a house or car, may still require repayment. Creditors must stop all collection efforts once the automatic stay is in place. They can, however, challenge a debt discharge if they believe the debt was obtained fraudulently. Secured creditors may also ask the Court for permission to repossess property if payments are not made.

What Can Creditors Do in Chapter 13 Bankruptcy?

In a Chapter 13 bankruptcy, debts are reorganized into a repayment plan that lasts three to five years. Creditors must follow the terms of the plan and cannot demand payments outside of what the Court approves. They do have the right to challenge repayment terms if they believe they are unfair or to dispute the amount they are owed. Once a plan is confirmed, creditors must comply with its terms and cannot take further collection action.

When Can Creditors Challenge a Debt Discharge?

Creditors do not have unlimited power in bankruptcy, but they can file objections if they believe a debt should not be eliminated. Some reasons a creditor might challenge a discharge include claims that the debt was obtained through fraud, that it involves child support or alimony (which cannot be discharged), or that excessive charges were made right before filing for bankruptcy.

If a creditor wants to dispute the discharge of a debt, they must file an adversary proceeding, which is a lawsuit within the bankruptcy case. This process requires presenting evidence before a Judge, and having a skilled bankruptcy attorney can help ensure that your rights are protected.

How Creditors Might Try to Violate Bankruptcy Protections

Most creditors follow the law, but some use sneaky tactics to continue collecting on debts that were legally wiped out. These tactics can include:

• "Reminder" Letters: Some creditors send misleading letters that make it seem like the debt still exists, even though it was discharged. These letters may say the borrower is "strongly encouraged" to pay or suggest that paying will improve their credit score.
• Selling the Debt to a Collection Agency: Some creditors sell discharged debts to third-party debt collectors who then attempt to collect, assuming the borrower will not know their rights.
• Resuming Automated Calls: Some creditors stop making collection calls right after a bankruptcy is filed, only to restart them months later, hoping the borrower has forgotten about their legal protections.
• Threatening to Sue: Even though suing to collect a discharged debt is illegal, some creditors threaten legal action to intimidate borrowers into paying.
• Withholding Important Financial Information: Some lenders may refuse to send a paid-in-full statement or report the correct debt status to credit bureaus, making it appear as if the borrower still owes money.

If a creditor is engaging in any of these practices after your debt has been discharged, it is crucial to act quickly to stop them.

What Happens If a Creditor Violates Bankruptcy Laws?

Once a debt has been discharged in bankruptcy, creditors are legally prohibited from trying to collect it. Any attempt to recover a discharged debt — whether through phone calls, lawsuits, wage garnishment, or other means — is illegal. Violating this law is known as creditor harassment, and borrowers have legal options to stop it.

Penalties for Creditors Who Violate Bankruptcy Laws

The penalties for creditors who attempt to collect discharged debts can be severe. If a creditor knowingly violates the bankruptcy discharge order, they can face:

• Contempt of Court Charges – A bankruptcy Judge can find the creditor in contempt, which can lead to court-ordered sanctions.
• Fines and Monetary Penalties – Creditors may be ordered to pay statutory damages, punitive damages, and the borrower’s attorney fees for their illegal actions.
• Legal Action from the Borrower – A borrower has the right to sue a creditor for violating the discharge injunction, potentially leading to compensation for stress, harassment, and financial losses.

In some cases, federal regulators such as the Consumer Financial Protection Bureau (CFPB) may investigate repeat violations by debt collectors and issue penalties, including fines or loss of their collection licenses.

What to Do If a Creditor Violates Bankruptcy Protections

If a creditor continues to harass you, do not ignore it. Keep records of all contact, including voicemails, letters, emails, or any other communication that suggests they are trying to collect on a discharged debt. Then, talk to a bankruptcy attorney as soon as possible.

A lawyer can file a motion for sanctions against the creditor, seek damages on your behalf, and ensure that all unlawful collection efforts stop immediately. Many people assume they must simply put up with post-bankruptcy creditor harassment, but you have legal rights, and creditors must follow the law.

How a Bankruptcy Attorney Can Help Protect You from Creditors

Filing for bankruptcy is a major decision, but it does not have to be overwhelming. An experienced bankruptcy attorney can stop creditor harassment immediately, ensure you qualify for the right type of bankruptcy, and protect your rights if creditors challenge your case. A lawyer will also guide you through the process, ensuring that all necessary paperwork is filed correctly and that you receive the full benefits of bankruptcy protection.

Contact a San Antonio, TX Bankruptcy Lawyer Today

You do not have to face creditor harassment alone. Bankruptcy can provide real relief, but having the right legal help is what makes a real difference. Contact Law Offices of Chance M. McGhee for a free consultation with a Schertz, TX bankruptcy lawyer at 210-342-3400 to find out how we can help you take control of your financial future.