Creditors and collection companies that buy debts from others or get hired to collect on behalf of another party can become very aggressive when they want money from those who owe them. Although there are certain laws that creditors must follow, even compliant collection attempts can quickly start to feel like harassment.
Creditors may call someone multiple times a week, possibly both at their home and place of employment. They may send intimidating letters and possibly threaten legal action that could lead to the garnishment of someone’s wages or a lien against their property. Creditors have certain rights when seeking to collect on debts as long as they do not violate fair debt collection practices, and they will often make use of those rights to the fullest.
However, those who owe money have rights as well. And for those who can no longer cope with the stress of collection efforts, bankruptcy can be a powerful tool, as it usually leads to an immediate cessation of collection efforts.
How does bankruptcy help?
If creditors could continue to harangue and demand money from someone undergoing bankruptcy, the process would not be nearly so beneficial. After all, bankruptcy can take months or even years to complete. Therefore, as soon as someone files, the courts intervene on their behalf. The same day that the courts accept bankruptcy paperwork, they will issue an automatic stay. That stay prevents collection activity and will also usually result in the dismissal of any pending lawsuits against the party that filed. While it is possible for some creditors to lift the automatic stay to continue collection efforts, most bankruptcy filings result in a very quick end to collection activity.
After a successful bankruptcy filing, the person seeking financial relief can potentially discharge whatever balance remains on their unsecured debts. Therefore, creditors will no longer be able to contact them about those debts after the discharge, nor will they be able to sell them to third parties or hire a collection company to take action on their behalf.
Not only does bankruptcy end the immediate stress of most collection efforts, it will also help to minimize or eliminate the financial issues that led to collection efforts in the first place. As a result, learning about how bankruptcy helps those with financial challenges may benefit individuals who are worried about collection activity and their financial futures.