Bankruptcy — the automatic stay and the discharge injunction

Authority

Bankruptcy Code: 11 U.S.C. § 362(a) (automatic stay), § 362(k) (damages for willful violation), § 524(a) (discharge injunction). Federal law, enforced by the bankruptcy courts — the stay arises by operation of law the instant a petition is filed, with no court order and no notice to creditors required, and violations are punishable even when committed by third-party collectors acting for a creditor.

Operative text

The automatic stay — what filing a petition freezes

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of— (1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; (2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; (4) any act to create, perfect, or enforce any lien against property of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; (7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and (8) the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title. — 11 U.S.C. § 362(a) (2023 ed., govinfo)

For a collection agency, § 362(a)(6) is the operative clause: any act to collect a prepetition claim — calls, letters, texts, dunning emails, credit-bureau pressure, payment-plan solicitations — is stayed.

Damages for willful violation

(k)(1) Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages. (2) If such violation is based on an action taken by an entity in the good faith belief that subsection (h) applies to the debtor, the recovery under paragraph (1) of this subsection against such entity shall be limited to actual damages. — 11 U.S.C. § 362(k)

The discharge injunction — the permanent version after discharge

(a) A discharge in a case under this title— (1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, 1192, 1228, or 1328 of this title, whether or not discharge of such debt is waived; (2) operates as an injunction against the commencement or continuation 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 discharge of such debt is waived; and — 11 U.S.C. § 524(a)(1)–(2)

Plain English

Interpretation — the quotes above win on any conflict.

• On ANY bankruptcy signal — petition notice, court mailing, attorney letter, consumer's verbal "I filed bankruptcy," a scrub hit — all collection activity on that claim stops immediately, pending legal review. The stay exists from the moment of filing whether or not the agency knew; there is no grace period and no cure by ignorance (knowledge goes to willfulness and damages, not to whether a violation occurred).
• The stay covers essentially everything an agency does: suits, garnishment on old judgments, calls, letters, texts, liens, setoffs (§ 362(a)(1)–(8)).
• Willful violations are expensive: actual damages + costs + attorneys' fees, plus punitive damages "in appropriate circumstances" (§ 362(k)(1)). "Willful" in practice means you knew of the bankruptcy and intended the act — not that you intended to break the law.
• Discharge is forever. When the case ends in discharge, the temporary stay is replaced by the § 524(a)(2) injunction: any act to collect the discharged debt as a personal liability is enjoined permanently, and any judgment on it is void (§ 524(a)(1)). Violations are punished as contempt of the discharge order.
• Whether a given debt survives (nondischargeable), whether the stay has terminated or been lifted, and whether the debtor even received a discharge are attorney questions — the collector's job is to stop activity and route to counsel, never to resume on its own reasoning.

Traps / edge cases

• No notice required. The stay binds "all entities" from the filing instant (§ 362(a)) — a call placed an hour after an unknown filing still violates the stay; it must be remediated (undo, don't repeat) even if damages for a not-yet-willful act are unlikely.
• Continuing acts count. "Continuation" of an action and ongoing garnishments/levies must be affirmatively stopped, not merely left running.
• § 362(b) contains a long list of statutory exceptions (domestic support, criminal proceedings, certain tax acts, etc.) — never self-assess an exception; that is the legal-review step.
• The stay is not always coextensive with the case: § 362(c) governs when it ends, and repeat-filer provisions (§ 362(c)(3)–(4)) can limit or eliminate it — again, attorney territory.
• Post-petition (new) debts are generally outside § 362(a)(6)'s prepetition-claim language — but classifying a claim as post-petition is itself a legal call.
• Discharge ≠ dismissal. A dismissed case ends the stay without an injunction; a discharged case converts it into the permanent § 524 injunction. Distinguish the two signals but treat both as "no activity until counsel says otherwise."
• Credit reporting on a discharged debt as if still owed is routinely attacked as a § 524 violation and an FCRA accuracy problem (see ./fcra-furnishing.md) — the hold must reach the furnishing pipeline, not just the dialer.
• Chapter 13 has a co-debtor stay (11 U.S.C. § 1301, not quoted here) protecting consumer co-obligors — another reason a bankruptcy flag on one person must trigger review before contacting others on the claim.

Related

• ./fcra-furnishing.md — furnishing accuracy after discharge
• ./reg-f/call-frequency.md
• ./reg-f/credit-reporting-prereqs.md
• ./fdcpa/communications.md — FDCPA cease/attorney-representation overlaps with legal holds