Filing for bankruptcy can be a transformative step toward financial freedom, offering relief from overwhelming debt. However, many individuals are unsure about what happens to their debts once they’ve gone through the bankruptcy process. Specifically, old debts and the collection efforts that often follow bankruptcy can create confusion and concern. In this blog post, we will explore what happens to your old debts after bankruptcy and provide clarity on the ongoing debt collection process. We’ll also discuss the protections that bankruptcy offers and when it’s important to seek professional assistance from a bankruptcy attorney at Winterbotham Parham Teeple, a PC.

What Happens to Debts After Bankruptcy?

1. Discharge of Unsecured Debts

One of the most significant benefits of filing for bankruptcy is the discharge of unsecured debts, such as credit card bills, personal loans, and medical bills. Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” wipes out most unsecured debts. In Chapter 13 bankruptcy, unsecured debts are typically reorganized into a manageable repayment plan, and any remaining balance may be discharged at the end of the repayment period.

Once your debts are discharged, creditors are legally prohibited from attempting to collect the debt. This means that collection calls, lawsuits, wage garnishments, and other forms of creditor harassment should stop.

However, it’s important to understand that not all debts are dischargeable in bankruptcy. Certain obligations, like child support, alimony, and some tax debts, are not eligible for discharge and must still be paid even after your bankruptcy is complete.

2. Secured Debts and Bankruptcy

Secured debts, such as mortgages and car loans, are different from unsecured debts. In a bankruptcy proceeding, these debts are handled separately:

Chapter 7 Bankruptcy: If you file for Chapter 7, the bankruptcy trustee may sell your non-exempt assets to repay secured creditors. If you want to keep the asset, such as your home or car, you must either reaffirm the debt or redeem the property by paying its current market value.

Chapter 13 Bankruptcy: In Chapter 13, you may be able to keep your home or car while catching up on past-due payments. The debt is reorganized into a repayment plan, which you will follow for 3-5 years. After the repayment plan ends, any remaining unsecured debt may be discharged.

The Role of the Automatic Stay-in Stopping Collection

1. Stopping Creditor Harassment

When you file for bankruptcy, an automatic stay goes into effect, providing immediate protection from creditors. This stay prevents creditors from pursuing further collection actions, including:

• Wage garnishments
• Foreclosures
• Lawsuits
• Collection calls and letters

The automatic stay remains in effect until your bankruptcy case is closed, either after the debts are discharged (in Chapter 7) or after your repayment plan is completed (in Chapter 13). This legal protection gives you the time you need to work through your financial challenges without the constant pressure from creditors.

2. Dealing with Violations of the Automatic Stay

If creditors continue to contact you or pursue collection actions after you’ve filed for bankruptcy, this may be a violation of the automatic stay. If this happens, it’s important to inform your bankruptcy attorney immediately. You have the right to ask the court to enforce the automatic stay and even seek damages for any illegal collection actions that took place.

What to Do if Debt Collectors Contact You After Bankruptcy

1. Double-Check the Type of Debt

If you’re contacted by a creditor or collection agency after your bankruptcy is complete, first verify whether the debt is one that was included in your bankruptcy case. If the debt was discharged, the creditor has no legal right to attempt collection, and you can request that they stop.

2. Seek Legal Help if Necessary

If you continue receiving collection attempts for discharged debts or debts that were included in the bankruptcy process, it’s important to contact a bankruptcy attorney. They can assist you in protecting your rights and ensuring that the discharge order is properly enforced.

3. Report the Violation

If a creditor violates the terms of the bankruptcy discharge, you can report the violation to your attorney, the bankruptcy court, and relevant regulatory agencies. These violations can result in fines, penalties, or even a lawsuit against the creditor for their unlawful actions.

The Importance of Understanding Your Debt After Bankruptcy

1. Stay Informed About Dischargeable Debts

Bankruptcy doesn’t automatically eliminate all types of debt. Knowing which debts are dischargeable under bankruptcy law is crucial. While unsecured debts like credit cards and medical bills are typically discharged, debts such as student loans, tax debts, and family support obligations are generally not. This knowledge will allow you to focus on paying off the debts that remain after bankruptcy and avoid any surprises down the road.

2. Managing Remaining Debts

After bankruptcy, you may still have some debts that you need to manage, such as secured debts or debts that were not discharged. Creating a budget and prioritizing these remaining obligations can help you stay on top of your financial situation as you rebuild.

Take Control of Your Financial Future

Navigating debt collection after bankruptcy can be confusing, but it’s essential to understand your rights and responsibilities. Once your debts are discharged, creditors must cease their collection activities, and you can begin to rebuild your financial life. However, if debt collectors continue to contact you, it’s crucial to take action and work with a bankruptcy attorney from Winterbotham Parham Teeple, a PC to protect your rights.

If you’re facing post-bankruptcy debt collection issues or need help understanding your bankruptcy options, contact our experienced bankruptcy attorneys at 800.400.9000 today for a consultation. We’re here to guide you through the process and help you achieve a fresh financial start.