If a creditor is suing you in small claims court, and you file a bankruptcy case to put an end to the problem (which it should), and the creditor does nothing further to collect on the debt (which is proper), the creditor still can end up in hot water if bad things happen to you after filing.
At least that is the moral of the Stone case, where a New Hampshire company violated the debtor’s bankruptcy discharge not by engaging in collections activity, but by being completely passive and allowing the small claims case to continue on it’s own.
The creditor was a fuel oil company that filed a suit in small claims court in New Hampshire for payment on an oil delivery, and won a judgment. After the suit was filed, Ms. Stone, the debtor, filed for Chapter 7 bankruptcy. A short while later, the oil company received notice of the bankruptcy case. They also received papers from the small claims court which were meant to be served by the sheriff on a motion to establish “periodic payments” from the debtor.
Because the company knew about the bankruptcy, they did NOT serve the papers on the debtor, but pocketed them and thought that was the end of the matter.
Typically, it would have been, but here the small claims court scheduled the hearing anyway, and when nobody showed up, issued an arrest warrant for the debtor, on it’s own action.
The arrest warrant was active for eleven days before the mix-up was cleared up, and no one was actually arrested, but a bankruptcy judge later found the oil company had violated the debtor’s discharge, not by engaging in collection activities, but by passively allowing the small claims case to continue when they knew a bankruptcy had been filed.
Although this bankruptcy court did not put the burden of disclosing the bankruptcy on the debtor, as a practical matter that is almost always the best practice.
I like to send out notifications (often called “suggestions”) of a bankruptcy case to local state courts as soon as a client’s bankruptcy case has a docket number — many many problems are nipped in the bud that way!
by Doug Beaton