Many creditors assume that once an account-holder files for bankruptcy, collections must stop and the account should be written-off. This is not necessarily true. While the automatic stay prohibits the creditor from collection efforts while the bankruptcy is pending, there may still be a chance of recovering a portion of the money owed to you. Afterall, one of the secondary goals of the bankruptcy process is to maximize return for creditors by reorganizing the debtor’s debts and selling any non-exempt assets to pay the creditors.
It is also important for creditors to remember that a debtor’s bankruptcy case may get dismissed, especially if the debtor filed under Chapter 13. A dismissal is good news for a creditor because it means the debtor did not receive a discharge of debt. Thus, the amount remains due and owing. Once a case is dismissed, the automatic stay terminates and a creditor may commence collection efforts again.
Lastly, if you are a creditor that has lien rights against a debtor, then your lien on the debtor’s property may survive the bankruptcy discharge. This means that while you cannot collect your debt, you may be able to enforce your lien in the event the debtor attempts a sale or refinance. If you hold a lien against a debtor, confer with your attorney regarding what rights you have at the conclusion of the bankruptcy case.
In sum, while the automatic stay prohibits collection efforts, that doesn’t mean you should immediately throw away your judgment against the debtor or write-off the account. It is important to have an experienced attorney evaluate your rights as soon as you receive the notice of bankruptcy.
The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation. We represent creditors in bankruptcy cases. If you need assistance, or are interested in learning more, please contact us at (480) 584-5660.