If you are facing harrowing calls from collection agencies, you may be getting desperate for relief. If you are considering bankruptcy for relief, it is important to know what debt collections will be covered by such bankruptcy.
Two Types of Bankruptcy
- Straight Bankruptcy, or Chapter 7 bankruptcy, involves filing with a court and selling off some of your assets to pay off what you owe. The debts that are not covered by the liquidation of your assets will be discharged, relieving you of the debt burden. You have to meet very specific criteria to qualify for Chapter 7 bankruptcy, and some of your assets are protected from the bankruptcy. This form of bankruptcy gives you the quickest solution to your debt problem.
- Wage Earner’s Plan, or Chapter 13 bankruptcy, involves offering a repayment plan to the bankruptcy court. If the court approves your plan, you must make payments over time, and this will remove your debt over that period. Remaining debt will be discharged. This solution does not bring an end to your debt as quickly as Chapter 7 bankruptcy, and the criteria for qualifying is different. You also may stand to keep more of your assets with this form of bankruptcy.
How Does Bankruptcy Affect Debt Collections?
When you file for either form of bankruptcy, an “automatic stay” is put into effect. This at least temporarily stops your creditors from continuing their collection efforts. While a lender can apply to have this stay lifted by the bankruptcy court, the automatic stay will help protect you against losing your home.
In the event that creditors continue to try to collect what you owe, despite the automatic stay, you must contact them immediately and inform them that you have filed for bankruptcy. In your letter, furnish the creditor with all of the relevant information, including your bankruptcy file number and date and copies of your filings. If you are still being chased by the creditor, you may have the right to file legal action against the creditor to stop all collection efforts.
What Debts are Typically Not Covered by Bankruptcy?
While a bankruptcy filing may protect you from the collection efforts of certain creditors, like credit card companies, some debts remain even if you file for bankruptcy. These include spousal and child support payments, certain tax debt, and student loans. Student loans typically are not covered by bankruptcy, unless you can prove that paying them would be an extreme financial hardship, which is hard to prove. Other collections can also continue if your creditor convinces a judge that the debt should not be covered by your bankruptcy.
Getting Help
As you go through the bankruptcy process, it is highly advisable to work with a qualified bankruptcy attorney. Your lawyer can help you to deal with your creditors and stop collection efforts. He can also help you make sure you choose the bankruptcy that is best for you in light of your debts and assets.
