Block debt collectors by filing bankruptcy.
Summary: Have someone who owes you a debt but has filed Chapter 7 bankruptcy? Did you file Chapter 7 but a debt collector is still trying to contact you? Find out if it's too late once a debtor has filed Chapter 7.
Filing Chapter 7 bankruptcy declares a debtor bankrupt and discharges most of the debt they have. However, some creditors still sue debtors even after they have filed Chapter 7 bankruptcy. Does this mean that creditors can still collect a debt owed after you've been declared bankrupt? This article explores the subject further, so read on!
Bankruptcy Stops Debt-Related Lawsuits
Once a debtor files Chapter 7 bankruptcy, the court declares an automatic stay that stops creditors from filing lawsuits. It also prohibits the creditor from calling, sending bills, or making other efforts to collect the debt. Notably, an automatic stay only stops creditors from filing petitions for dischargeable debt. This debt includes:
- Personal loans
- Credit card balances
- Medical bills
- Unpaid rent
- Car loans
- Mortgage foreclosure
- Utility bills
- Business debts
- Debt arising from accidents except those causing death or bodily injury
While such debts are dischargeable after filing bankruptcy, the debtor can decide to pay for them voluntarily. Sometimes debtors agree to repay a debt because a family member owes it or is obligated to an individual with whom the debtor's reputation is at stake.
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Creditors Can Sometimes Collect a Debt After the Court Declares an Automatic Stay
Sometimes a debtor is obliged to pay their debt even after the court declares an automatic stay on their properties. Aside from fraud cases (discussed later in this article), the creditor can obtain an exemption from the automatic stay. However, the creditor must prove that the automatic stay harms their legal claim, contractual rights, or property.
Persons with non-bankruptcy-related claims, secured creditors, cosigners, or lessors may be granted an exemption. There are two main reasons a bankruptcy court can grant exemption: a lack of equity and for a cause. When claiming relief for a cause, the creditor must:
- Show that the automatic stay doesn't protect them, especially if the debtor's property values are plummeting
- Prove that the automatic stay places an unfair burden on the person interested in the debtor's property
- Prove that the lawsuit is unrelated to the bankruptcy
- Show that the debtor has failed to carry out their bankruptcy duties or is using bankruptcy to delay payment
When applying for an exemption due to a lack of equity, the creditor must prove that the debtor's property has little or no value, and interest in the property shouldn't be subjected to the stay. If an exemption is granted, the bankruptcy court may decide to lift it entirely or modify it to the creditor's situation. For nondischargeable debts, the creditor can still proceed to sue the debtor. This type of debt includes
- Tax debt
- Student loans
- Unscheduled debts (debts not listed on the bankruptcy petition)
- Court penalties and fines
- Child or spousal support
- Cooperative housing fees or debts related to a condominium
- Attorney fees related to child custody proceedings
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Lawsuits that Can't be Discharged by Filing for Bankruptcy
An automatic stay does not protect a debtor from lawsuits associated with:
Fraud: If the debtor engaged in fraudulent activities and entered into debt, it can't be discharged by filing for bankruptcy. The creditor can file a lawsuit successfully by applying for an exemption. In this scenario, the court must first determine that the debt resulted from fraudulent activities before allowing the creditor to file a lawsuit.
Personal Injury Cases: If the debtor was driving while intoxicated and caused death or injury, bankruptcy can't discharge the resulting debt. A bankruptcy court allows the victim to file this type of lawsuit to determine whether the debtor was intoxicated.
Criminal Prosecution: Filing bankruptcy doesn't halt a criminal case.
Child Custody and Divorce: This doesn't affect a bankruptcy charge directly. The same argument holds for peace bonds and restraining orders.
Debt After Filing Bankruptcy: If the debtor applied for a loan within three months of filing bankruptcy but failed to pay it back, this debt can't be discharged. If the debtor causes an accident that wrote-off the victim's vehicle within two months of filing bankruptcy, the court can't discharge the debt.
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What Happens to an Ongoing Lawsuit When a Debtor Files Bankruptcy
If a debtor has a pending lawsuit when they filed bankruptcy and it relates to an issue other than dischargeable debt, the parties have three options:
- Move the case to the bankruptcy court
- Dismiss the case
- Ask for permission from the bankruptcy court to continue the lawsuit
However, suppose the debtor filed Chapter 7 Bankruptcy before the plaintiff filed the lawsuit. In that case, the parties can agree to file an adversary proceeding or file the suit in another court after the bankruptcy court grants permission. Creditors or other parties filing adversary proceedings use them to:
- Determine the extent, validity, priority on a lien or other interest in the property
- Determine the dischargeability of a specific debt
- Recover property or money from a party other than the debtor
- Object to or revoke the debtor's discharge
- Ask the judge to order an injunction
- Decide if a matter should be moved to another court
- Ask for the court to make a declaratory judgment
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What Happens When You're Sued After Filing Bankruptcy?
If the debt is nondischargeable and the creditor is allowed to sue, you'll be served with a complaint. This is a written document explaining why the creditor or other person suing you should be granted an exemption from the bankruptcy court.
According to the Federal Rules of Bankruptcy Procedure, the document is served via the address on your bankruptcy petition. You'll also be served with a summons outlining how soon you should respond to the complaints and whether you need to make any court appearances.
There are two ways debtors can respond to complaints: they can file an answer or file to dismiss the motion. Debtors who don't have an attorney prefer to file an answer because filing to dismiss the motion is complex. Then the debtor must appear in court for a status conference. The proceedings are relatively brief and involve acquainting the judge with the general details of the case. The judge then sets hearing dates for subsequent appearances.
This detailed insight should help you identify if a lawsuit is possible after filing for bankruptcy. While some debts are discharged after Chapter 7 Bankruptcy, creditors still have a right to sue you if granted an exemption or the lawsuits aren't bankruptcy-related.
What is SoloSuit?
SoloSuit makes it easy to respond to a debt collection lawsuit.
How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.
Respond with SoloSuit
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate
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