When you decide to file for bankruptcy, you are making a difficult decision. You are looking for a better life and more control over your financial matters. You have received a court discharge, but creditors are still calling and sending demand letters. You relied on the promise of freedom from creditor harassment to make your new life a reality.
Automatic Stay in Bankruptcy
When you filed your bankruptcy case, you had a powerful tool at your fingertips. The “Automatic Stay” goes into effect the moment you file your case. It is a judicial action that prevents creditors from taking any action to collect your debts during the bankruptcy period. They are not allowed to:
- Contact you
- Send you letters, text messages, or emails
- Repossess your collateral
- Take legal action against you
- Place liens on your property
- Engage in any similar activities
You should have noticed an almost immediate and significant decrease in these activities almost as soon as you filed your case. Some creditors, especially small stores and large bureaucratic organizations, struggle to integrate bankruptcy notifications and the fact of your filing into their systems.
It may take time, and sometimes action from your bankruptcy attorney, or even sanctions from the court, to convince the creditor of the seriousness of the proceedings and the need to cease harassment.
Unfortunately, these creditors are often the ones who do not get the message at all, and upon entering the discharge, they will still try to collect the discharged debt.
Sometimes, debtors may ignore ongoing collection activity during the case, assuming that it will stop or that it is pointless and not worth the effort to correct the situation.
Judicial Action for Discharge
When the court enters your general discharge order, the automatic stay turns into a permanent discharge order under Section 524 of the U.S. Bankruptcy Code. This means that the creditor whose debt is discharged can no longer take action to collect that debt. However, there are circumstances in which a creditor can contact you and even attempt to collect the debt.
Here are some actions that a creditor may take after you file your bankruptcy case or after the discharge:
- Propose or pressure you to enter into new debt to replace the old debt
- Consolidate the old debt into a new loan (for example, when refinancing a car loan)
- Attempt to collect debts you verbally agreed to (without a renewal agreement)
- Contact you or send written claims
- Refuse to report the discharged debt on your credit report unless you pay it
- Send notices regarding discharged debts
- Take legal action
Discharged vs. Rejected Debts
Whether a creditor is legally justified, and whether the debtor is violating the discharge order depends on meeting certain specific elements. If the case is dismissed instead of discharged, the creditor has the right to continue collecting the debt.
Bankruptcy cases typically end either in discharge or dismissal. Discharge is the intended outcome usually, as it relieves the debtor from liability for dischargeable debts such as credit cards, medical bills, personal loans, and even car and home loans. However, some cases do not reach the discharge stage and are dismissed instead.
There can be any number of reasons leading to a case being dismissed. If the debtor fails to complete their official paperwork, fails to file tax returns with the trustee, fails to attend their creditors’ meeting in Section 341, or fails to cooperate with the trustee, the court will dismiss the case.
A Chapter 13 plan case can be dismissed for all those reasons, but also when the debtor fails to obtain confirmation of the Chapter 13 repayment plan or when they fail to make payments or take other actions required under the repayment plan.
When
The case is dismissed, and it often feels as if the case was never filed in the first place. The debtor loses protection from the automatic stay, and creditors who were halted can resume their collection efforts.
Debts That Cannot Be Discharged
Some debts will not be discharged in a bankruptcy case. Some are not automatically discharged, while others will only continue if one party requests the court to declare the debt non-dischargeable.
The court’s discharge order will not mention the debts that were discharged, but your attorney will be able to clarify this for you. If a debt is not discharged, the creditor can resume collection efforts when the court issues the discharge order.
In general, these debts will not be discharged:
- Income tax debts from the last three tax years
- Past due child support and alimony
- Debts resulting from driving under the influence
- Student loans
- Debts owed to the government due to fines and penalties
These debts will not be discharged if the creditor objects to their discharge:
- Debts arising from willful and malicious wrongdoing
- Certain recent credit card charges for cash advances or luxury goods or services
- Debts resulting from fraud or embezzlement or violation of fiduciary duty
- Debts that you failed to list in your bankruptcy papers
Debts After Bankruptcy
If you open a credit account or incur debt after filing your bankruptcy case, it is likely that this debt will not be discharged, and the creditor may try to collect it from you.
If you incurred this debt as part of a Chapter 13 case (for example, to buy a new car), you will be required to include this debt in your Chapter 13 plan. You are likely to pay it while you are in the case, and you will not have anything to discharge at the end.
Keeping Property After Bankruptcy
Even your car and home loans can be dischargeable in Chapter 7, but the creditor has the right to take and sell your collateral. If you want to keep the property that secures the loan, you will have to continue making payments until the loan is paid in full, even after your bankruptcy case is closed.
You may enter into a reaffirmation agreement where you and the creditor agree that the loan will not be discharged, and you will remain responsible for the debt. If you later fail to pay, the creditor will have full recourse regarding collection actions, just as if the debt were not part of the bankruptcy case.
Solutions If You Have Annoying Creditors
If one of the creditors is asking you for money after your case has been discharged, contact your bankruptcy attorney immediately. Your attorney will help you determine whether the debt has been discharged.
If the debt has been discharged and the creditor is acting in violation of the discharge order, your attorney may contact the creditor, either formally or informally, demanding that they cease collection activity.
If the creditor refuses to stop, your attorney may ask the court to reopen your bankruptcy case and sanction the creditor for their violation. You may also request the court to order the creditor to pay any damages you may have incurred due to unlawful collection activity.
The information provided in this article is not tax or legal advice and does not replace such advice. State and federal laws change frequently, and the information in this article may not reflect your specific state’s laws or recent changes to the law. For current tax or legal advice, please consult a tax professional or lawyer.
Source: https://www.thebalancemoney.com/when-creditors-do-not-stop-calling-after-bankruptcy-4156787
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