Lawsuits, Collections, Creditor Harassment

One of the benefits of declaring personal bankruptcy is the automatic “stay” or stop in collection activities. This includes lawsuits, collections, and creditor harassment related to your debts. This stay proves to be a relief from these sources of stress, giving you time to regroup and figure out a new course of action. If you are overwhelmed by creditor harassment and collection actions, an experienced Los Angeles bankruptcy attorney may be able to help you determine if bankruptcy is a good choice.

Debt Collection Lawsuits and Collections

Personal bankruptcy stops certain debt collection activities and lawsuits, among other collection activities. However, criminal proceedings may go forward. Not all lawsuits are stopped. For example, divorce and child support proceedings may continue, even if they involve the debt of back child support. Tax proceedings and pension loan repayment suits can also proceed during the automatic stay. Lawsuits to collect medical debts and credit card debts, however, will be included in the automatic stay. The effect of bankruptcy on these types of lawsuits and collection activities depends on which type of bankruptcy you file.

Chapter 7 bankruptcy proceedings typically last a few months, at which point most debts are discharged. Once the bankruptcy is completed, if the underlying debt giving rise to a lawsuit or other collection activity is discharged, the creditor is not allowed to pursue the activity any further. The court issues a discharge order notifying all of your creditors, including those that are suing you, that you are no longer legally responsible to pay back your debts. Collection lawsuits will be dismissed.

While most debts are discharged in a Chapter 7 bankruptcy, not everyone qualifies for a Chapter 7 bankruptcy. First, you must pass the means test. If you do not pass the means test, you may qualify for a Chapter 13 bankruptcy.

A Chapter 13 bankruptcy also includes an automatic stay of all collection activities including lawsuits and collections. But unlike in a Chapter 7 bankruptcy, you must sometimes repay part of your unsecured debts through a repayment plan that lasts three years, and that under certain circumstances lasts up to five years.

Once you complete a Chapter 13 debt repayment plan and your debts are discharged, the lawsuit can no longer be re-filed against you and must remain dismissed. (assuming that it related to a debt that was discharged in the proceedings). On the other hand, failure to complete a debt repayment plan may result in your bankruptcy case getting dismissed. In that case, when the automatic stay is over, the lawsuit starts up again where it left off.

Creditor Harassment

In both types of bankruptcy, creditor harassment must stop during the automatic stay. If a creditor continues to harass you, telling the collector or person harassing you to contact your lawyer or that you have filed for bankruptcy will stop the harassment. If the collector doesn’t stop, you can notify the bankruptcy court.

The bankruptcy court has the power to sanction a collector for failing to follow the automatic stay order if the failure is willful. The court can impose fines or ask the collector to pay damages. If collectors continue to harass you or pursue other collection activities at this point, you may file a lawsuit against the collector under unfair trade practice laws, the fair debt collection practices laws, or the Fair Credit Reporting Act.

If you are facing harassment or lawsuits by creditors, an experienced Los Angeles bankruptcy lawyer can help you figure out which type of personal bankruptcy may be appropriate for your situation. Contact Devin Sawdayi at 310-475-9399 or via our online form for help with this process.