Designed as a way to give debtors a fresh financial start, bankruptcy helps many families start saving for their future rather than getting buried in an avalanche of debt. However, sometimes old debts may reappear even after bankruptcy, and dealing with them can feel like going through bankruptcy all over again.
An essential step after bankruptcy is learning your rights and responsibilities so as to reduce the stress of seeing a collection notice even after you’ve had that debt discharged.
Why Debts Come Back
You might assume that a bill you get in the mail after you’ve gone through bankruptcy is a legitimate debt, but that’s not always the case. Some debts do remain even after bankruptcy (like child support, recent tax debt, and some student loans), but sometimes there are other circumstances that lead to getting a collection notice in the mail.
One of the steps you’ll take during bankruptcy is listing all of your creditors and debts, as well as the official addresses where each of those creditors receives mail. The creditors then receive a notice in the mail about the bankruptcy, which prevents further collection efforts and also gives the creditors a chance to participate in the bankruptcy proceeding.
If you’re going through Chapter 13 bankruptcy, your creditors will participate so as to receive a portion of the monthly payment required by the court to satisfy the terms of the bankruptcy. If you’re going through Chapter 7 bankruptcy, your creditors will participate so that they can receive payment if and when your non-exempt assets are liquidated.
Sometimes, a creditor sells a debt to a debt buyer for pennies on the dollar, and that debt buyer has no idea that the debt was discharged in bankruptcy. Occasionally, miscommunications occur during the bankruptcy, and the creditor doesn’t receive notice of the proceeding. In some unfortunate instances, creditors choose to disregard the court’s decree and try to collect anyway.
Ruthless Collections and Major Lenders
A combination of ruthless creditors, debt buyers, and confusing statutes that vary from state to state are often to blame for some debts that seem to crop up out of nowhere even after bankruptcy has discharged those debts.
According to an article from “The New York Times,” federal officials believe:
“…some of the nation’s biggest banks ignore bankruptcy court discharges, which render the debts void. Paying no heed to the courts, the banks keep the debts alive on credit reports, essentially forcing borrowers to make payments on bills that they do not legally owe.”
The number of citizens finding their credit reports tarnished by post-bankruptcy debts has caught the attention of the federal government’s Justice Department. They’ve decided to investigate major lenders like JPMorgan Chase, Citigroup, and a handful of other huge financial entities.
What to Do When Debt Comes Back
It’s essential to investigate debts that come to your doorstep after bankruptcy to clarify whether they’re valid or whether a miscommunication between creditors and debt buyers occurred during the bankruptcy process. You have several options for dealing with these debts, and it’s important that you not ignore collection notices even if you believe they’re not valid.
A creditor can’t actively attempt to collect a debt during the bankruptcy process because of something called an “automatic stay,” which prevents collection activity. According to Nolo, you have three options that include:
- Tell the creditor about the bankruptcy (which usually stops collection efforts)
- Notify the court about a potential violation of the automatic stay
- File a lawsuit if the collector doesn’t respect the automatic stay
However, after the bankruptcy is finished, and you have the final notice that your debts have been discharged, sometimes those debts may cause problems even if the creditor doesn’t actively try to collect.
Unfortunately, some creditors will keep reporting a debt on a credit report even if it was discharged in bankruptcy. A tarnished credit report might mean a denial for future credit for something as essential as a lease on an apartment.
Sometimes, someone who has already gone through bankruptcy feels compelled to pay a discharged debt in order to qualify for essential contracts or loans after bankruptcy. Occasionally, a marred credit report can even cause problems for job seekers.
Sorting Through Post-Petition Debts
Another layer of complexity that might be added to the bankruptcy process is whether a debt is “post-petition,” which means you incurred the debt after bankruptcy was filed. Federal code § 1305 states:
(a) A proof of claim may be filed by any entity that holds a claim against the debtor—
(1) for taxes that become payable to a governmental unit while the case is pending; or
(2) that is a consumer debt, that arises after the date of the order for relief under this chapter, and that is for property or services necessary for the debtor’s performance under the plan.
In many cases, post-petition debts must be paid, but sometimes this issue isn’t clear-cut because of the type of debt. For example, a lease you signed might not be discharged because you must maintain the lease for reasons of housing.
Additionally, some installment debts like mortgages and car loans could retain liens against them even though the creditors would become ineligible to receive a monetary judgment on the property after bankruptcy.
Confusion over debts during and after bankruptcy is just one of the reasons why speaking with a lawyer is the best way to avoid problems down the road with creditors and debt.
Looking for Bankruptcy Advice?
Are you considering bankruptcy as a way to satisfy your tax debt or other unpaid debts? You’ll want to download our Free eBook: 12 Things You Should Know Before Filing Bankruptcy.
DISCLAIMER: All information on this website is provided for informational purposes only and is not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein or any actions taken in reliance thereon.