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Discharged Creditor Responsible for Selling Debt

April 21, 2010

A bankruptcy discharge is a permanent court injunction prohibiting creditors from enforcing certain obligations against the debtor. While the bankruptcy discharge does not actually “erase” a debt, it prohibits any collection against the debtor personally. In plain terms, the debt is no longer legally enforceable against the debtor and the creditor can no longer engage in any type of collection activity such as; letters, phone calls, threats of criminal proceedings or other adverse actions brought about with the purpose of debt repayment.

The purpose of the discharge injunction is to provide the debtor with a fresh financial start, free of the pressures of former debt. Violation of the bankruptcy discharge is a serious matter. A willful violation of the discharge injunction constitutes contempt of court. The violator (often called the “contemnor”) may be penalized for this conduct, including a hefty fine and payment of attorney fees.

Recently United States Bankruptcy Court Judge Enrique S. Lamoutte discussed the liability of a creditor that sold a discharged debt and the subsequent purchaser attempted collection action. This is practice is often referred to as “zombie” debt collection. The debt is legally “dead,” and the collector attempts to “bring it back to life” through direct collection efforts.

In the case of Laboy v. FirstBank Puerto Rico, Judge Lomoutte reminds creditors that they "are obligated to maintain procedures to ensure that they do not violate [the discharge injunction], and may be held liable for damages and attorney’s fees if they do not.” He concluded that FirstBank had knowledge of the bankruptcy filing and discharge and that its actions in selling the debt to a debt collector some 15 years after the bankruptcy discharge violated the discharge injunction.

If you receive contact from a debt collector concerning a discharged debt, notify your bankruptcy attorney immediately. This may be an innocent error, or it may be a zombie debt collector on the prowl. Either way, you should contact your bankruptcy attorney and chase these zombies debts back to the grave!


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