There are countless challenges that can interfere with the right to collect valid debts. People who owe money to businesses may return mail unopened, refuse phone calls, change their phone numbers, addresses and even their jobs to avoid collection efforts.
In some cases, people may also file for personal bankruptcy to avoid litigation or other aggressive collection efforts. Contrary to what business owners might assume, there is still legal protection for creditors built into the bankruptcy process.
Creditors can request relief
Generally speaking, credit card balances, medical debts and other unsecured financial obligations may be eligible for discharge in a bankruptcy. Typically, collection efforts against a filer must halt the same day as the person petitions the courts for bankruptcy relief due to the automatic stay.
Fortunately, creditors do have legal protection and can respond to the bankruptcy case in court. They can initiate adversary proceedings, which are essentially supplemental lawsuits related to a bankruptcy case.
Creditors have the right to ask that the courts lift the automatic stay to allow them to continue their collection efforts. Creditors can also potentially ask that the courts exclude their accounts or debts from the discharge granted in special cases. The conduct of the debtor, the type of bankruptcy they pursue and a variety of other details about the situation influence the most effective way to respond to a pending bankruptcy case.
While businesses generally need to respect the automatic stay, it is possible to lift the stay to resume collection activity or to prevent the inclusion of a debt in the discharge granted at the end of the bankruptcy. Business leaders notified by the courts, credit bureaus or a debtor about a recent filing can benefit from legal guidance in evaluating their collection options when a consumer bankruptcy filing complicates collection efforts.