One of the more troubling aspects of running a consumer financial services company concerns acting upon notice of a customer’s bankruptcy filing. Too often, the notice never shows up at the creditor’s office—and meanwhile, the creditor’s CSRs have continued their collection efforts against a debtor who has filed for bankruptcy. The next communication that the creditor receives is likely to be a summons in an adversary proceedings with a complaint for a violation of the Automatic Stay. Aggravation does not begin to describe the feeling!

There is a presumption, known as the “mailbox rule” that when the Bankruptcy Noticing Center (BNC) or debtor’s counsel “posts” a notice letter to the creditor, by depositing the same in the U.S. Mail, there is created a presumption that the notice was duly mailed and duly received by or on behalf of the creditor. And, this is a difficult presumption to overcome—nearly insurmountable. The sad result of this circumstance is that the debtor is more often than not going to be successful in the claim that the creditor’s collection efforts have violated the automatic stay, entitling the debtor to receive damages. Aggravation does not begin to describe…

So, what can a creditor do? I have two thoughts to offer:

First, one approach is to go to Bankruptcy Noticing Center Home Page (uscourts.gov) and sign up to receive all bankruptcy notices electronically through the National Creditor Registration Service (NCRS) or consolidate all U.S. Postal Service notices at one address. This is a free service provided by the U.S. Bankruptcy Courts to give all recipients (including creditors) more convenient delivery options for their bankruptcy notices. You can have notices delivered either electronically (the faster, more reliable and convenient method) or designate a single mail address (to redirect U.S. Mail delivery to a preferred address).

In connection with this approach, set up an email address solely for the purpose of receipt and acting upon bankruptcy notices. Can this work? It should.

To further support this approach, the creditor’s contracts and all communications should include the email address of the creditor for bankruptcy related notices. Contract forms will have to be carefully scrutinized to make certain that all notice references include the email address.

A second approach is to strengthen the claim of non-receipt of notice—that is, try to prevail on the argument that the notice of bankruptcy was indeed not received by the creditor. Despite the current track record of the U.S. Postal Service, the presumption of due notice is still the creditor’s to overcome. To prevail on this approach, the creditor must have a really good, systematic procedure for receiving and processing mail. That is, if the creditor has an ironclad process in place as to mail receipt and processing, this will allow a company representative to testify, with supporting evidence, as to not receiving a notice allegedly sent. A naked denial of receipt is just not enough. 

If these approaches are used, note that they do not insulate the creditor from other forms of notice. Stated differently, you can’t say that only notice to the email address is effective. If a creditor receives notice via a different method (i.e., mail, phone call, etc.), the risk of a willful stay violation still exists.

Please Note: This is the two hundred-forty-sixth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report. To receive weekly insights to your email from the Consumer Finance Report blog, subscribe here.

P.S.  *Special thanks to my creditor rights partner Thomas Humphries for his thoughts contributed to this blog!