When a debtor files bankruptcy, the goal in most cases is to obtain a discharge to eliminate debt and get a fresh start in their financial lives. In Chapter 7 cases, the case is usually open for about four months, and then the debtor receives the discharge and the case is closed.
Many people contemplating bankruptcy wonder how the bankruptcy will affect them after the case concludes.
Since most debts are discharged, creditors can no longer collect on those debts. They cannot file lawsuits, garnish wages, send demand letters, or make phone calls. Any attempt to collect from the debtor after the discharge is a violation of the bankruptcy code. This applies even if the debtor obtains a new job or receives money from another source.
Creditors that can still collect from the debtor are those that are not discharged, or that hold secured interests against the debtor’s property. For example, if the debtor has alimony or child support payments, those are not discharged and the ex-spouse can still take legal action to collect. Some tax debts are not dischargeable, which allows the IRS to collect on those debts after the bankruptcy. The debtor should be aware of which debts are not discharged through consultations with his attorney.
Creditors with a security interest (such as a mortgage lender) can still attempt to foreclosure on the property, if the debtor defaults on the loan. The bankruptcy discharge protects the debtor against money judgments, but the security interest usually survives a Chapter 7 case, which allows the creditor to enforce the lien on the property if they are not paid. If the debtor wants to keep a home, they need to keep the payments current. With car loans, many debtors that want to keep their car will reaffirm the car loan during the bankruptcy, which removes the loan from the bankruptcy discharge, but allows the debtor to keep the car if they can afford the payments.
Purchases that require financing or credit can be more difficult in the first few years after a bankruptcy filing, but in the long run, the absence of debt can be a positive factor for lenders seeking to extend credit.
When considering bankruptcy, it is important to consult with an attorney that can explain which debts will be discharged and whether the bankruptcy will accomplish your goals.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.