If you are like most debtors, dealing with creditors and collections is the straw that makes a bad situation, worse. Threats of repossession, credit damage, and constant phone calls often push people to the point of wanting to give up. Luckily, there are ways to stop credit collections and hand over the responsibility of dealing with creditors.
One of the most immediate benefits of filing for bankruptcy is the issuing of the automatic stay. Once your case has been filed with the court all of your creditors are served with a notification of the automatic stay. This court order not only prohibits creditors from contacting you, they also cannot make any attempts to collect on the debt in question. Any violations of this order could leave the creditor facing serious consequences and even threatens their ability to stake a claim on any repayment in your case.
Meeting Of Creditors
While your creditors will be prohibited from collecting from you, they do still have some rights in bankruptcy. Creditors have the right to file a proof of claim on the debt in question, and attend the 341 meeting of creditors. You will be required to attend this meeting as well for the purposes of answering any questions regarding these debts. This may sound scary, but it is due process for the bankruptcy case to ensure that those who do want to file a claim get the chance to. However, this does not mean that a creditor is guaranteed any repayment by filing a proof of claim, nor do all creditors even show up to this meeting.
The bankruptcy court determines which creditors get repaid based on their priority status and the calculation of your income based repayment plan, if applicable. Not all creditors will have their proof of claim granted, and many may walk away empty handed. Priority debts such as the IRS, domestic support obligations, and criminal restitution payments are always first on the list to be paid through a Chapter 13 plan or Chapter 7 liquidation. Debts like credit cards and medical bills usually fall at the end of the list and are discharged with lesser to no costs to you.
After A Discharge
Once the court grants you a discharge, any of the eligible debts included in the case will be considered resolved and remain uncollectible under the automatic stay. This means that if your medical bills are discharged and the creditor received little to no payments, those bills remain uncollectible forever. However, it is important to note that the automatic stay will only grant immunity to the person who filed bankruptcy on jointly held debts or debts with more than one responsible party for repayment.