Collection Remedies in Bankruptcy Debts

• There are avenues for creditors during a bankruptcy.money image by Bradlee Mauer from Fotolia.com
  
  Bankruptcies are used to give people a fresh start by eliminating the obligation to repay certain debts. There is little creditors can do once a bankruptcy has been discharged as the debt is considered relieved, but there are some avenues available for creditors who want to get as much of the owed money as possible.
  
  

Contested Bankruptcy

• When notified that a debtor has filed for bankruptcy, the creditor must cease all contact with the debtor and stop all collection activities. They can, however, contest the bankruptcy and ask the judge to either exempt them from the bankruptcy or to guarantee that a portion of the debt is paid back. This is more viable for local creditors as it requires visiting the district bankruptcy court that the bankruptcy has been filed in.
  
  

Foreclosure

• If a loan is secured with a lien on property, such as a home, the creditor can ask the judge for a motion of relief from stay. This allows the creditor to continue collection proceedings after the bankruptcy has been filed. In the case of a home, this means the bank would have the right to begin foreclosure proceedings. Even after a bankruptcy has been discharged and the debt eliminated, a lien on property survives the bankruptcy; this means the property can still be taken by the bank, unless the judge has specifically voided the lien.
  
  

Reaffirmation Agreement

• Once the bankruptcy has been discharged and the debt eliminated, the person with the former debt and the creditor can create an agreement where the debt is paid back voluntarily. The debtor no longer legally owes the money, but he agrees to attempt to pay it back in good faith. These agreements are legal as long as the debtor was not threatened or coerced into making the agreement. This usually happens when the debtor feels a moral responsibility to pay back the debt, such as when the debt was owed to a family member or to a local business that they have long done business with.