By: Loretta Kilday on 2023-09-05
Bankruptcy is a legal procedure that relieves individuals and businesses from overwhelming debts. It either erases debts in Chapter 7 bankruptcy or sets up a repayment plan in Chapter 13 bankruptcy.
It begins by filing a petition in bankruptcy court, which stops creditor actions with an automatic stay. A trustee oversees the case, and creditors can file claims. Completing the process achieves debt relief and a fresh financial start. Bankruptcy laws vary, so consulting a bankruptcy attorney to seek legal advice is advisable.
After filing for bankruptcy, the process varies depending on the bankruptcy type (Chapter 7 or Chapter 13) and your situation.
Once you submit the petition, an automatic stay begins. The automatic stay stops actions by creditors such as collections, lawsuits, and foreclosures.
Chapter 7 involves selling non-exempt assets to repay creditors. Qualifying unsecured debts are usually discharged a few months after the meeting with creditors.
Chapter 13 creates a repayment plan to catch up on missed payments over a specified period. Remaining qualifying unsecured debts are discharged after plan completion.
Post-bankruptcy, rebuilding credit is crucial. Responsible behavior like on-time bill payments and secured credit cards can aid in credit recovery.
Pre-bankruptcy Debt and Post-Bankruptcy Debt
Bankruptcy only cancels debts accrued before the filing of your bankruptcy petition. Post-petition debt is any debt incurred after you file your bankruptcy petition. Debt collectors can still pursue you for post-bankruptcy debt. The post-petition debt can be brought up in a later bankruptcy case, but you must wait several years before filing again.
Laws Regarding Debt Collection Practices after a Bankruptcy Discharge
Creditors and collection agencies must halt collection efforts for debt discharged in bankruptcy. Nonetheless, collection operations persist after bankruptcy. Debt that has been discharged cannot be pursued. But, collection efforts for non-dischargeable debt and post-bankruptcy debt can continue.
With a few exceptions, debt collectors are not permitted to phone, send letters, or speak to you in person about any debt discharged in bankruptcy. Debt collectors cannot sue you. Also, they cannot take your wages or access your bank account for debts dismissed in bankruptcy.
Tips for dealing with debt collectors after a bankruptcy
Identify the creditor
You can verify the legitimacy of the call by identifying the creditor. While talking, gather essential details like the caller's name. You may further ask for the company name, address, phone number, account number, and owed amount.
You must also note down the date and time of the call.
Request a debt validation letter
Before engaging with a debt collector, you must ensure the debt is valid and truly yours. Ask for a debt validation letter with debt details, like the owed amount and creditor info.
Exploring debt relief solutions such as debt consolidation, debt settlement, or a debt management program could benefit non-dischargeable or post-bankruptcy debt. "Negotiating with debt collectors through mail is always an option," said Samantha Hawrylack, Founder of How To FIRE.
She further explained, "It's not a requirement to negotiate debt over the phone. Communication through mail can avoid certain difficulties associated with direct bargaining".
Inform your creditor
After bankruptcy, you might still encounter debt collectors seeking payment for discharged debts. Or the creditor may be violating the automatic stay that halts collection efforts during bankruptcy.
Inform the debt collector about your bankruptcy discharge. You may share your discharge date and bankruptcy case number. If needed, offer to send them a copy of the bankruptcy order for verification.
Consult your bankruptcy attorney
Ask the debt collector to contact your bankruptcy attorney.
You must also tell your bankruptcy attorney if a debt collector attempts to collect debt and seek advice.
Bankruptcy attorneys have in-depth knowledge of bankruptcy law. They can offer specialized advice based on your individual circumstances.
File court papers
If your creditor continues to attempt to collect a discharged debt, you can initiate legal proceedings.
"If a collector violates the FDCPA by persisting in their collection attempts on discharged debts, you may have legal grounds to take action against them," says Brian Clark, Founder of United Medical Education.
This could involve an adversary proceeding. You might need to reopen your bankruptcy case. If the creditor has violated discharge terms, they are also responsible for covering attorney fees.
Final Thoughts
Handling debt collectors after bankruptcy requires a balanced approach. Although bankruptcy provides a new financial beginning, you must know your rights and duties.
Communicating with debt collectors, with awareness of post-bankruptcy protections, can mitigate unnecessary stress and ensure your compliance with legal obligations.
The journey after bankruptcy is a step toward regaining control of your financial future. And being well-informed empowers you to handle debt collectors with confidence and resilience.
Frequently Asked Questions
Once the bankruptcy court officially discharged your debt, you are no longer held accountable. Debt collectors are prohibited from attempting to collect on it. If you encounter a collector who disputes your bankruptcy discharge or makes threats of legal action, it is crucial to contact your attorney.
If the creditor continues their efforts despite your discharge, you might want to contemplate legal measures. Persistently pursuing discharged debts is against the law, specifically outlined in section 524 of Title 11 of the United States Code.
Filing a lawsuit against credit harassment could potentially lead to financial compensation for their breach of regulations.
Chapter 7 and Chapter 13 bankruptcies provide relief by discharging consumer debts.
These processes can discharge different types of debts. For instance, credit card balances, personal loans, medical bills, unpaid utility and cell phone bills, overdue rent, and other unsecured debts.
In the event of Chapter 7 bankruptcy and the unintentional omission of a dischargeable debt, you typically should no longer be held responsible for it, even if it wasn't listed as part of your debt.
But, the situation changes if your Chapter 7 bankruptcy falls under the category of an asset case, where the trustee sold your property, and the resulting funds were divided among your creditors. In this scenario, the debt may still be outstanding.
The majority of Chapter 7 bankruptcies are classified as no-asset cases. This means you don't possess valuable property to satisfy creditor payments, resulting in no distribution by the trustee. In such cases, Chapter 7 bankruptcy discharges most debts, and if you inadvertently omitted one from your list, the creditor typically has no recourse to collect the owed amount.
If you have omitted a debt from your Chapter 13 bankruptcy filing, that debt remains unpaid.
It's crucial to distinguish between Chapter 7 and Chapter 13 bankruptcy.
In Chapter 7, the court generally eliminates most of your debts. In contrast, Chapter 13 means crafting a repayment plan with your creditors. The remaining balance is discharged after a set period, typically three to five years.
Debts not included in the Chapter 13 repayment plan still need payment. You must negotiate an independent payment arrangement with the creditor or fully settle the debt.
With proper help you can
- Lower your monthly payments
- Reduce credit card interest rates
- Waive late fees
- Reduce collection calls
- Avoid bankruptcy
- Have only one monthly payment