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Does bankruptcy always mean an end to your collection rights?

On Behalf of | Jul 16, 2021 | Collection

When a person or business owes you money, you may have to go to great lengths to convince them to pay. Frequent phone calls, strongly worded letters and even civil lawsuits may be necessary to convince someone to repay what they owe you. 

Occasionally, the people who owe you money will take extreme measures to avoid their financial responsibilities. They might file bankruptcy to stop a lawsuit and potentially discharge the debts that you hold, preventing you from taking any future steps against them for nonpayment. 

Does someone filing for bankruptcy immediately mean that your business can’t collect on a debt?

Bankruptcy filings mean a temporary halt to collection activity

Regardless of the nature of the debt, you will probably need to temporarily stop collection efforts when you learn that someone filed for bankruptcy. The automatic stay issued at the time that someone files initial bankruptcy paperwork protects them from future collection activity until the courts resolve their bankruptcy. 

However, an automatic stay is neither permanent nor a guarantee that your debt is dischargeable. You don’t have to sit back passively and wait to find out if the courts discharge the debt you hold when someone files for bankruptcy. You can actually request a special hearing where you ask the courts to lift the automatic stay as it applies to your debt or to ask them to exclude your debt from the bankruptcy filing and possible future discharge. 

A close review of the paperwork related to the debt can give you a better idea about what collection options are available to you if someone files for bankruptcy when they owe you money.