Dealing with Creditors After Bankruptcy
Interviewer: So what happens after a bankruptcy is discharged?
Andrew Campbell: Well if a discharge is granted then the debts associated with that bankruptcy filing are no longer collectible against that person.
The bankruptcy case is then closed. The consumer’s credit report, within a reasonable time, should note that all the discharge debts have a “0” balance and state either “discharged in Chapter 7” or “discharged in Chapter 13”.
It is also a good idea for a debtor to place those copies of that order of discharge in a file with all of their other related documents.
It is critical to keep all credit reports just in case a creditor or debt collector continues to attempt to collect a debt at a later time.
In the event a collector sends a letter on a debt that has been discharged, you can simply pull out that order and send a copy.
Sometimes a creditor will insist upon seeing the actual schedules to determine if the debt was listed.
So, it is very important to list all debts and be as accurate as possible so it is a good idea to make copies of your complete petition.
This way you can prove that you listed a certain debt and attempted to notify the proper parties.
Most courts, in a Chapter 7 bankruptcy case, will allow discharge of debts that are not listed.
Sometimes people simply forget about a debt. If a debt does not appear on a credit report and the consumer does not have
Most Chapter 7 cases are called “no-asset” cases. This simply means that a person has no assets that can be taken by a trustee.
In the mid-Michigan area, probably 95% of all cases are no-asset cases.
The trustee cannot take assets from the debtor to sell and give creditors.
So in that kind of case, the courts generally rule that there was no harm to a creditor whose debt was not listed.
If in fact there were assets that the trustee did take and sell then in that case a creditor who was not listed would be prejudiced or harmed.
Interviewer: When you say life after bankruptcy, you know chapter 7 ends about four months after filing but a chapter 13 can be three or five years, so will this help someone that’s still in chapter 13 or only after they’re done?
Andrew Campbell: Yes and No. A typical lawyerly answer right?
There is an automatic stay issued on the filing of a bankruptcy, whether that is a Chapter 13 or a Chapter 7.
That means that creditors or collectors are not supposed to try to collect money or continue a court action against a consumer after that order has been issued.
Essentially the automatic stay is a fancy way of saying, court order.
So a debtor is protected from the minute the petition is filed.
From a practical standpoint, it will likely take a couple of weeks for most collectors to get notice of the filing so a consumer has to have some patience.
A Chapter 7 is only four months long while a Chapter 13 is three to five years.
So if a creditor is being paid in a Chapter 13 case but is still trying to collect above that amount outside of the bankruptcy process that is a real problem.
That would likely be a violation of law. Most creditors won’t engage in this kind of activity, though.
Also, the same goes for after discharge in a Chapter 13.
If a creditor or collector continued to collect on a discharged debt after discharge that would also likely be a violation.
Interviewer: Got you. What’s the goal of helping people after bankruptcy?
Is it to help them get back on their feet or is it to help them avoid creditors that may have slipped through the bankruptcy process?
Andrew Campbell: Well, both. Once a consumer gets their discharge they, by law, they deserve to be protected.
That is not my opinion. That is a legal fact. Congress created the Fair Debt Collection Practices Act because it found that collection of debts was leading to divorce, suicide, and unemployment.
Congress created the Fair Debt Collection Practices Act because it found that collection of debts was leading to divorce, suicide, and unemployment.
None of those are constructive for any civil society. As a result, Congress imposed several standards that debt collectors must follow.
One of these standards is that a bill collector must not send deceptive or misleading statements when attempting to collect a debt.
So if a collector fails to run a database check on debtors once they receive an account then they are putting themselves in a position to violate the FDCPA.
If the debtor failed to list a debt in a Chapter 13 then that could prejudice the creditor. I think the better question is to examine the facts and circumstances surrounding the efforts the consumer took to list the debt properly.
I think the better question is to examine the facts and circumstances surrounding the efforts the consumer took to list the debt properly.
It is so important to investigate all debts and to take your time finding all debt collectors. Also, a consumer should:
- Get more than one credit report;
- Search for all bills and letters.
- Keep a copy of all letters and bills coming.
It is difficult because most debt collectors only keep an account for about six months.
So if you accidentally throw out a letter from a few months back you can see how easy it is to have difficulty keeping track of debts.
Most of the time a credit will not be prejudiced. When a creditor is prejudiced, however, the harm tends to be fairly minor. That’s because a person is more likely to be aware of larger sized debts.
Most of the situations I see where debts haven’t been listed are debts that are less than $1,000.00 in value.
In the end it is a very rare situation in which forgetting to list a debt causes a lot of harm.
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