Businesses attempting to collect on outstanding debts are subject to certain restrictions. Adherence to all state and federal regulations regarding debt collection is critical. Companies also need to ensure that they do not violate the protective provisions of bankruptcy law.
Individuals who file for bankruptcy have temporary relief from collection efforts and even lawsuits when the courts grant them an automatic stay. Creditors notified of a pending bankruptcy typically have to cease all collection efforts.
Does a pending bankruptcy mean that a creditor no longer has any means of collecting on a debt?
Creditors can ask for relief
Businesses seeking to collect on a debt in Florida can ask the courts to grant them relief from the automatic stay. They can file paperwork requesting an adversary proceeding, which is a lawsuit filed in conjunction with the pending bankruptcy case.
Creditors with proof of fraud or other problematic circumstances can potentially ask the courts to lift the automatic stay to allow them to continue collection efforts or pursue litigation. In some cases, creditors may even be able to ask that the courts exclude their debts from the discharge provided at the end of the bankruptcy process.
If debtors took on financial obligations they had no intent of repaying or engaged in other forms of misconduct, then the business(es) impacted by that misconduct may be able to continue collection efforts despite the pending bankruptcy case. The courts can lift the automatic stay.
Partnering with a lawyer familiar with the complexities of debt collection law can help organizations respond effectively when debtors file for bankruptcy. While bankruptcy often means the end of collection rights, some creditors can request relief and continue seeking repayment for valid debts.
