How Will Filing for Bankruptcy Affect the Collection of Debts?

 Posted on October 12, 2022 in Bankruptcy

For people who are considering bankruptcy, large debts have affected their lives and their finances in many ways. The requirement to make payments toward multiple debts each month may have become impossible, especially if a family is experiencing financial difficulties due to the loss of a job, unexpected expenses, or other issues. To make matters worse, late or missed payments may have led creditors to begin taking action to collect debts. People in these situations often experience harassment from creditors, which may include regular phone calls at home or at work, as well as threats to repossess property or even claims that a person could face criminal consequences due to failure to repay what is owed. 

One of the key benefits of filing for bankruptcy is the fact that doing so will put an "automatic stay" in place that will require creditors to stop attempting to collect debts. The automatic stay is a court order that will force creditors to cease any debt collection actions while the bankruptcy case is ongoing. For those who are thinking of filing for bankruptcy, it is important to understand how the automatic stay works and what it means for creditors.

The Effects of the Automatic Stay

The automatic stay will go into effect as soon as the bankruptcy petition is filed with the court. Creditors will be notified of the bankruptcy, and they will be prohibited from taking any actions to collect the debt. This includes wage garnishment, foreclosure, and repossession. In fact, it applies to any actions that a creditor may take against a debtor, including calling them to seek repayment or sending collection notices in the mail. If a creditor tries to collect a debt or take any action after the bankruptcy has been filed, they may be held in contempt of court. 

The automatic stay can give a debtor a chance to catch their breath and reorganize their finances without having to worry about creditors constantly hounding them. As a person proceeds with the bankruptcy process, they can determine which debts may be eliminated and how they will be able to maintain ongoing financial stability by using the income they earn to cover their various expenses. Depending on whether they are pursuing a Chapter 7 or Chapter 13 bankruptcy, they may be able to discharge certain types of debts within a few months, or they may create a repayment plan that will allow them to pay off certain debts while avoiding the loss of property through foreclosure or repossession.

The automatic stay may also provide a debtor with the opportunity to negotiate with creditors. In some cases, loan modifications may be available for home mortgages, auto loans, or other types of debts. These modifications may allow for lower monthly payments or a reduction of the amount owed. By pursuing these types of modifications while eliminating other debts through bankruptcy, a person can reduce their overall debt burden, avoid the loss of property, and make sure their family is on a more solid financial footing.

Contact Our Parker, TX Bankruptcy Attorneys

If you are planning to file for bankruptcy, it is important to understand the role that the automatic stay will play in your case. The automatic stay does not get rid of your debts, but it stops creditors from taking action to collect them. In some cases, creditors may be able to have the automatic stay lifted, allowing them to proceed with collecting debts. This could mean that a creditor may still be able to proceed with a home foreclosure or the repossession of a vehicle. 

If you are considering filing for bankruptcy, it is important to consult with an experienced bankruptcy attorney who can help you understand how the process works and how you can use the automatic stay to your advantage. To get legal help with debt-related matters, contact the Fort Worth bankruptcy lawyers at Acker Warren P.C. by calling 817-752-9033 and arranging a free consultation.

Sources:

https://www.law.cornell.edu/uscode/text/11/362 

https://www.investopedia.com/terms/a/automaticstay.asp