Bankruptcy is a legal proceeding an individual or a business can initiate with a bankruptcy court when they are unable to pay outstanding debts or obligations. There are different types of bankruptcy, and they are commonly referred to by their chapter within the U.S. Bankruptcy Code, such as Chapter 11, Chapter 13, or Chapter 7 bankruptcy. Typically, the bankruptcy trustee is appointed in order to represent the best interests of unsecured creditors.
Bankruptcy can clear away your debt but it does more. When you file for bankruptcy, you will also gain access to bankruptcy protections that can bring peace of mind into your life during and after your bankruptcy filing.
How Is the Debtor Protected?
Generally, all creditors that you listed on your bankruptcy petition are subject to an automatic stay, which provides the majority of your bankruptcy protections. The automatic stay is one of the most significant features of the Bankruptcy Code, as it places a legal barrier between the bankruptcy filer and creditors, financial institutions, and any other party that has an interest in the filing.
Federal bankruptcy laws allow the debtor a certain amount of time to reorganize their finances. But that wouldn’t be possible if creditors continued their collection actions. So, when a debtor files a bankruptcy case, all collection activity must be stopped under federal law.
All formal and informal actions a creditor might take in order to collect against you will be shut down by the automatic stay. Letters from collection agencies, mortgage foreclosures, imminent repossessions, pending lawsuits, and current or future wage garnishments must stop immediately. Otherwise, the party that is sending the notifications could be held responsible and fined.
Actions After Your Bankruptcy Filing
Many people will actually receive a few notices at the start of their bankruptcy case. Such letters should not cause concern, as they are usually an unintended consequence of a creditor’s automated collection system. You should inform the creditor that you filed a bankruptcy case, and give them your case number, the date the case was filed, and the name and phone number of your legal representative. Once this basic information is given, you should not discuss the debt with them any further.
Once the bankruptcy case is filed, you should no longer attempt to deal with any creditor, just as any creditor should not deal with you. You cannot pick and choose some particular creditor and pay it “on the side.” You cannot arrange a payment to be paid to some particular creditor, either. All of your debts must be dealt with through your plan. Therefore, it is imperative that you list all creditors on your bankruptcy questionnaire and in your bankruptcy petition.
Potential Penalties for Violating the Automatic Stay
Penalties for not complying with the automatic stay order can include fines as well as punitive damages.
In most situations, once you receive a discharge in your case, any creditor listed on your petition is prevented by the discharge order from collecting a debt that was included in the case. If one of your creditors violates the discharge order and does contact you, let a Northwest Georgia bankruptcy attorney from Bournakis and Mitchell, P.C. know right away. We may send them a letter or reopen the case in order to bring an action against the creditor for violating the discharge injunction. The court can order the creditor to pay for your damages, your related costs, and legal fees, and even add damages intended solely to punish the creditor for its inappropriate actions.
All bankruptcy filings place an automatic stay or bankruptcy protection on the bankruptcy estate. Gaining bankruptcy protections and knowing how to react to creditors that overstep their boundaries should be a top priority for you when you are in heavy debt. Get to work on your case and secure a better tomorrow by contacting our law firm and placing a free case evaluation on your calendar.