Call us today: (888) 501-0513

DCDM Law Group logo

Can Creditors Still Come After You If You File for Bankruptcy?

The major reason companies and individuals file for bankruptcy is because of the fear of losing assets if they are sued and a judgment is entered against them. Once you file for bankruptcy protection under a Chapter 7, 11 or 13, however, your creditors are subject to an automatic stay where all collection activity must cease.

Otherwise, once a judgment is entered is entered against you, a creditor can pursue collection in a number of ways. Many conduct a debtor deposition, usually at a courthouse, where the judgment creditor’s attorney subjects you, the judgment debtor, to questioning about the existence and location of your assets such as bank accounts, stocks, motor vehicles, real property and your employment situation. The creditor’s attorney will usually have subpoenaed you and served you with a request for documents as well. By conducting the deposition at the court, the attorney can request the court to order you to produce documents and to respond to questions.

If you do file a bankruptcy petition, the deposition will not go forward. Any efforts to seize or levy on your bank accounts, property or to garnish your wages are barred as well. But can a creditor still come after you despite your filing?

Foreclosures

If your home is being foreclosed upon, any bankruptcy filing will halt the process based on the automatic stay. If you filed under Chapter 7, however, the stay can be lifted once the creditor-lender files a motion for relief from the stay. A court will nearly always grant the relief after a hearing because of the substantial harm to the lender’s interest in the property. The only benefit to you is that the temporary stay does give you time to either find other housing or a source of funds to redeem the property or pay off the existing arrearages.

A Chapter 13 will also stay the foreclosure but will allow you to make up the arrearages under an approved repayment plan so long as you can meet the monthly mortgage payments.

Obligations Based on Illegal Conduct

Should your obligation to the creditor be based on grossly negligent conduct or that which exhibits substantial indifference to the rights and safety of others, then a bankruptcy will not protect you. Such acts would include intoxicated driving, fraud or other criminal behavior, which are usually excluded from insurance coverage. In product liability cases, a company that manufactures and markets a product it knows to be defective and can produce substantial injury might be exposed to punitive damages that insurance would not cover.

Also, if you committed fraud in the filing of your petition, you risk your case being dismissed by the court and not being able to refile. You also face possible criminal prosecution. Examples of such fraud include failing to disclose or lying about a substantial asset such as a foreign bank account or other real property that are subject to seizure.

Other Non-Dischargeable Debt

You may not discharge arrearages for any domestic support obligations such as child support or alimony. Unless you can demonstrate extreme hardship, student loans are not dischargeable either.

Some debtors believe that they can maximize a credit card or obtain one for that purpose and simply file to discharge the debt. Credit card companies can challenge the discharge of this debt by alleging you incurred it with no intention of repaying it. If a court agrees, the debt obligation remains despite the bankruptcy and the creditor can pursue collection.

If Creditors Ignore the Automatic Stay

You might still hear from creditors despite your filing for bankruptcy. If they call, inform them of the Chapter under which you filed, the case number and the name of your attorney. In some cases, a creditor may assert:

  • You filed under the wrong chapter
  • The debt is a business one that is not covered under this filing
  • You committed fraud

Many of these assertions are false and are only intended to get you to pay the debt anyway. Seek the advice of a bankruptcy attorney if you are not represented in your case regarding a possible violation of the automatic stay.

If the creditor knew of your bankruptcy filing but acted anyway to collect the debt, then your options are to seek damages under your state’s unfair trade practice or debt collection practices laws, or to file under the federal Fair Debt Collection Practices Act or Fair Credit Reporting Act. The bankruptcy court can assess fines against the creditor and order it to pay attorney’s fees and even damages.

 

The major reason companies and individuals file for bankruptcy is because of the fear of losing assets if they are sued and a judgment is entered against them. Once you file for bankruptcy protection under a Chapter 7, 11 or 13, however, your creditors are subject to an automatic stay where all collection activity must cease.

Otherwise, once a judgment is entered is entered against you, a creditor can pursue collection in a number of ways. Many conduct a debtor deposition, usually at a courthouse, where the judgment creditor’s attorney subjects you, the judgment debtor, to questioning about the existence and location of your assets such as bank accounts, stocks, motor vehicles, real property and your employment situation. The creditor’s attorney will usually have subpoenaed you and served you with a request for documents as well. By conducting the deposition at the court, the attorney can request the court to order you to produce documents and to respond to questions.

If you do file a bankruptcy petition, the deposition will not go forward. Any efforts to seize or levy on your bank accounts, property or to garnish your wages are barred as well. But can a creditor still come after you despite your filing?

Foreclosures

If your home is being foreclosed upon, any bankruptcy filing will halt the process based on the automatic stay. If you filed under Chapter 7, however, the stay can be lifted once the creditor-lender files a motion for relief from the stay. A court will nearly always grant the relief after a hearing because of the substantial harm to the lender’s interest in the property. The only benefit to you is that the temporary stay does give you time to either find other housing or a source of funds to redeem the property or pay off the existing arrearages.

A Chapter 13 will also stay the foreclosure but will allow you to make up the arrearages under an approved repayment plan so long as you can meet the monthly mortgage payments.

Obligations Based on Illegal Conduct

Should your obligation to the creditor be based on grossly negligent conduct or that which exhibits substantial indifference to the rights and safety of others, then a bankruptcy will not protect you. Such acts would include intoxicated driving, fraud or other criminal behavior, which are usually excluded from insurance coverage. In product liability cases, a company that manufactures and markets a product it knows to be defective and can produce substantial injury might be exposed to punitive damages that insurance would not cover.

Also, if you committed fraud in the filing of your petition, you risk your case being dismissed by the court and not being able to refile. You also face possible criminal prosecution. Examples of such fraud include failing to disclose or lying about a substantial asset such as a foreign bank account or other real property that are subject to seizure.

Other Non-Dischargeable Debt

You may not discharge arrearages for any domestic support obligations such as child support or alimony. Unless you can demonstrate extreme hardship, student loans are not dischargeable either.

Some debtors believe that they can maximize a credit card or obtain one for that purpose and simply file to discharge the debt. Credit card companies can challenge the discharge of this debt by alleging you incurred it with no intention of repaying it. If a court agrees, the debt obligation remains despite the bankruptcy and the creditor can pursue collection.

If Creditors Ignore the Automatic Stay

You might still hear from creditors despite your filing for bankruptcy. If they call, inform them of the Chapter under which you filed, the case number and the name of your attorney. In some cases, a creditor may assert:

  • You filed under the wrong chapter
  • The debt is a business one that is not covered under this filing
  • You committed fraud

Many of these assertions are false and are only intended to get you to pay the debt anyway. Seek the advice of a bankruptcy attorney if you are not represented in your case regarding a possible violation of the automatic stay.

If the creditor knew of your bankruptcy filing but acted anyway to collect the debt, then your options are to seek damages under your state’s unfair trade practice or debt collection practices laws, or to file under the federal Fair Debt Collection Practices Act or Fair Credit Reporting Act. The bankruptcy court can assess fines against the creditor and order it to pay attorney’s fees and even damages.

 

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.