Can a Creditor Garnish My Bank Account After I Receive a Bankruptcy Discharge?

There is a common misconception that a Chapter 7 bankruptcy wipes away all of your debts. What actually happens is that the court will discharge any debts that are specifically protected under federal law. A discharge functions like an injunction. It essentially prohibits the creditors holding the discharged debt from taking any further legal action to collect. And if they violate the discharge order, they can be held in civil contempt by the judge.

Debt Collector Fined Over $64,000 for Ignoring Chapter 7 Discharge

This recent horror story from right here in Florida demonstrates what can happen when a creditor–or in this case, a debt collector–tries to do an end-run around a bankruptcy discharge. This case, In re Mcintosh, began more than 20 years ago when the debtor and her then-husband filed for Chapter 7 bankruptcy. This was a “no asset” bankruptcy, meaning the couple had no assets subject to liquidation. The debtor successfully completed the Chapter 7 process and received her bankruptcy discharge.

Five months later, a debt collector sued the debtor in Florida state court, alleging she owed $7,382.90 on an unpaid credit card bill. The state court issued a civil judgment in favor of the debt collector, which then sat on the matter for close to 20 years. Then, in 2023, the debt collector moved to garnish the debtor’s bank accounts, seeking payment of more than $24,000 for the original unpaid debt plus interest.

The debtor was unaware of any of this until she saw her bank account now suddenly had a negative balance. At first, she assumed she had been the victim of identity theft. Then she learned the truth–a debt collector violated the bankruptcy discharge and illegally obtained a civil judgment against her.

The debtor then moved to reopen her original federal bankruptcy case and filed a motion to hold the debt collector in civil contempt for its actions. The bankruptcy court granted the motion. The judge found the debt collector’s actions were “objectively unreasonable,” and therefore not just illegal but also “egregious and reprehensible” in that they showed a “reckless or callous disregard for both the law” as well as the debtor’s rights.

Accordingly, the court imposed significant sanctions on the debt collector, including $43,124.62 in compensatory damages for the debtor’s emotional distress and an additional $21,562.31 in punitive damages.

Contact a Debt Discharge Lawyer Today

Violating a Chapter 7 bankruptcy discharge is a serious matter. The entire point of the bankruptcy system is to give honest debtors a fresh start, free of the constant threat of collection activities from overzealous creditors. Creditors and debt collectors who ignore the rules can and should be held accountable for their actions.

Cases like this also demonstrate the critical importance of working with an Orlando Chapter 7 bankruptcy lawyer who will fight for your rights both before and after you receive a discharge. Call Florida Law Advisers, P.A., today at (800) 990-7763 to schedule a free, no-obligation consultation.

Source:

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