Bankruptcy's Effect On Debt Collection

Filing personal bankruptcy stops many debt collection activities. Typically, creditors consist of businesses, individuals, debt collection representatives or attorneys who attempt to obtain the money individuals owe. They try a variety of ways to collect debts. For instance, creditors can constantly call people or send demand letters for payment. Or they can start the legal process to sue for the amount of money owed or to foreclose on property. In worse case scenario, creditors can garnish wages or bank accounts.

Filing Personal Bankruptcy Stops Debt Collection Activities

Once bankruptcy cases are filed, the U.S. Bankruptcy Courts provide individuals with an automatic stay. This automatic stay simply means that all debt collection attempts must cease—immediately. If creditors are trying to take wages, sue or take property such as homes, they have to stop or get in trouble with the courts. The automatic stay remains in effect until the cases are discharged (completed) or dismissed.

Chapter 7 Bankruptcy Erases Debts

Personal bankruptcy consists of two choices. Chapter 7 bankruptcy allows people to eliminate their unsecured debt. In other words, the U.S. Bankruptcy Courts wipe out people’s debts and creditors often are not paid. Thus, they won’t have to repay creditors. Generally, chapter 7 takes up to six months to complete. Chapter 7 protects individuals from garnishments and lawsuits.

Chapter 13 Bankruptcy Allows People to Pay Back Debts

Chapter 13 provides individuals with the opportunity to repay their debts over time. The U.S. Bankruptcy Courts approves repayment plans. The repayment plans outline the monthly amount (based on the amount of money owe) people pay to the bankruptcy trustee and for how many years. The trustee then distributes the money to creditors. Therefore, in three to five years people can pay their way out of debt and save their homes—if they need to. Chapter 13 is the only option for individuals who must stop mortgage lenders from foreclosing on or taking their homes. In addition, it protects people for garnishments and lawsuits.

Seek Legal Help to Stop Debt Collection Activities

Anyone wanting to stop debt collection activities should contact a bankruptcy lawyer. The lawyer will review people’s financial situations and determine which type of bankruptcy chapter is best. In addition, the lawyer will file the required paperwork to immediately stop foreclosures and wage garnishments.