We do not recommend making any contact with or filing a lawsuit against a customer who has verbally notified you about a bankruptcy filing, without consulting your bank counsel.

The Bankruptcy Code’s prohibition on actions to collect a debt after a borrower has filed for bankruptcy —known as the “automatic stay” — begins to apply when a bankruptcy petition is filed and does not expire until the bankruptcy action has been discharged.

Several bankruptcy courts have held that verbal notice of a bankruptcy proceeding is sufficient to initiate the automatic stay’s protections. The mere fact that your bank is aware of the bankruptcy proceedings may be sufficient; one Illinois bankruptcy court penalized a creditor for violating the automatic stay, even in the absence of formal notice, because its actions demonstrated that it had knowledge of the bankruptcy proceedings. Consequently, once a borrower has verbally notified you of a bankruptcy proceeding, you should not communicate with or take any action against the borrower.

For resources related to our guidance, please see:

• Bankruptcy Code, 11 USC 362(a)(6) (A petition filing for bankruptcy “operates as a stay, applicable to all entities, of . . . (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; . . .”)

• Bankruptcy Code, 11 USC 342(g) (“(1) Notice provided to a creditor by the debtor or the court other than in accordance with this section (excluding this subsection) shall not be effective notice until such notice is brought to the attention of such creditor. . . . (2) A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.”)

• In re Lile, 103 B.R. 830, 836 (Bankr. S.D.Tex. 1989) (“Once notice of the bankruptcy filing is received, a creditor is subject to all of the Code's provisions regarding the automatic stay. Any notice, whether oral or written is sufficient.”)

• In re Stewart, 190 B.R. 846, 854 (Bankr. C.D.Ill. 1996) (“Although the CREDITOR was not listed as a creditor and it did not receive a notice from the Court, it subsequently learned of the bankruptcy. Yet on two occasions it proceeded without first having the automatic stay removed. . . . . The last question that needs to be answered is what are the sanctions for violating the automatic stay. . . .”)