Creditors and lenders attempting to collect on debts have many options available to them. Written communications, phone calls and even legal action can help compel a debtor to fulfill their financial obligations. In some cases, debtors attempt to seek legal protection from collection efforts. Businesses and individuals can initiate bankruptcy as a means of delaying litigation and terminating collection activities.
Do creditors and lenders have to cease all collection efforts and write off the debt when a party that owes money files for bankruptcy?
The courts may offer creditor relief
Most bankruptcy filings lead to an automatic stay. Creditors have to cease collection activity until the courts resolve the bankruptcy case by granting a discharge or dismissing the filing. Creditors hoping to pursue lawsuits against debtors, foreclose on real property or repossess financed or collateral assets can potentially ask the courts for relief.
Filing a petition for an adversary proceeding gives a creditor an opportunity to ask the courts for special consideration. In some cases, the courts may grant relief from the automatic stay. They may allow the lender to resume collection activity, potentially including repossession or litigation. Other times, the courts may agree that the debtor engaged in inappropriate conduct and may exclude a particular debt from the pool of obligations that are eligible for discharge in the bankruptcy case.
Reviewing details about a debt and the bankruptcy filing of a debtor with a skilled legal team can help lenders and creditors pursue the repayment they’re owed. Bankruptcy can complicate debt collection efforts, but it does not universally prevent creditors from obtaining what they deserve.
